Charter Hall Long WALE REIT has hit the accelerator on its investment activities, spending $492 million on property purchases across the country in the first half of fiscal 2019 compared with just $96 million over the same period a year earlier.
The fund, which floated in late 2016, now has a portfolio of 113 properties across the retail, office, agri-logistics and industrial sectors, up from 81 properties in June 2018 and increased its operating earnings from $27.3 million in 1H FY18 to $31.1 million in the six months to December.
The REIT has made several recent property purchases including $159 million worth of office space across Brisbane and Perth and in December, after fresh fundraising, bought 27 agricultural properties across Australia, leased to chicken producer Inghams, for $207 million.
During 1H FY19, the REIT also disposed of $174 million worth of assets, including half of its Tax Office building in Adelaide to reduce its risk of exposure to a single tenant lease with one expiry date in a small market.
But the surge in transactional activity has also come at a cost with the trust taking a $15.7 million hit in “acquisition and disposal related costs” pushing up its total expenses by 144 per cent from $16.5 million to $40.3 million.
The Charter Hall-run fund also booked no net fair value gain on its investment properties in the six months to December 31, compared with $5.4 million over the same period in 2017, which contributed to the 42 per cent drop in statutory profit for the period.
The fund, which is one of a series of listed and unlisted trusts managed by Charter Hall, has also increased its weighted average lease expiry from 11.3 years to 12.6 years.
“We’ve been proactively managing the REIT to achieve those longer leases by both working with existing tenants to renew and extend leases and also through aquisitions,” fund manager Avi Anger said.
“We’ve increased the WALE of the portfolio, we’ve increased our exposure to government tenants, which is important given their resilience, we acquired the Inghams portfolio in December, which improves the diversification of the portfolio … so we’re on track to deliver our earnings,” he said.
Earnings and distribution per security slightly decreased from 13?? and 13.7?? respectively in 1H FY18 to 12.9?? in 1H FY19 due to recycling and deployment timing of portfolio enhancement initiatives.
The target for the year is earnings per security of between 26.8?? and 26.9??, which is 1.5 to 2 per cent higher than FY18.
“We’ve been able to recycle the proceeds of the ATO building in Adelaide and complete further transactions and as a result we’ve been able to grow earnings over the year, which is a pretty good outcome,” Mr Anger said.
“There was a drag on our earnings because we had to sit on cash for a little while, and some analysts were worried that earnings would be flat for one year as a result, but actually through these transactions in December we’ve improved.”
Mr Anger said the agri-logistics properties the fund acquired in December had appeal because of their importance to the overall business of Inghams, rather than the asset class itself.
“We were also attracted to the triple-net nature of those properties, where the tenant pays for all expenses and capital works and we just collect the rent,” he said.
CLW bought the Ingham properties with a 16-year average WALE but subsequently increased it to 25 years.