• Operating Earnings Per Security: $0.126 for the first half of FY25.
• Distributions Per Security: $0.123, consistent with December 2023.
• Same-Property NPI Growth: 3% overall; shopping center NPI growth at 2.5%, net lease NPI growth at 4.5%.
• MAT Growth: 3.4% for the shopping center portfolio.
• Occupancy Rate: 98.7% for the shopping center portfolio.
• Leasing Spreads: 3.8% positive leasing spreads.
• HPI Acquisition: 85.4% ownership of HPI, with a $1.3 billion portfolio of 58 hospitality assets.
• Net Tangible Assets (NTA) Per Unit: Increased by 1.3% to $4.57.
• Portfolio Cap Rate: 5.82% as of December 31, 2024.
• Weighted Average Cost of Debt: Increased from 4.3% to 5%.
• Balance Sheet Gearing: 31.8%, with look-through gearing at 37.9%.
• Supermarket MAT Growth: 3.9% with 87% of supermarkets paying turnover rent within 10% of thresholds.
• Specialty Tenant Sales Productivity: $11,278 per square meter.
• Retention Rate: 84% for leasing transactions.
• FY25 Operating Earnings Guidance: Approximately $0.254 per unit.
• FY25 Distributions Guidance: Expected to be in line with FY24's distribution of $0.247 per unit.

• Warning! GuruFocus has detected 7 Warning Signs with ASX:CQR.

Release Date: February 13, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Charter Hall Retail REIT (ASX:CQR) reported a strong operating earnings per security of $0.126 for the first half of FY25.
• The company achieved a high occupancy rate of 98.7% in its shopping center portfolio.
• CQR successfully launched a takeover offer for Hotel Property Investments (HPI), acquiring 85.4% of the units.
• The net lease convenience assets showed a robust same-property NPI growth of 4.5%, highlighting the strength of their diversification strategy.
• CQR's specialty tenant sales productivity reached a record high, with positive leasing spreads of 3.8%.

Negative Points

• Finance costs increased due to a rise in the weighted average cost of debt from 4.3% to 5%.
• The company's look-through gearing is relatively high at 37.9%, which may pose a risk if not managed carefully.
• MAT growth, while positive, showed signs of slowing, indicating potential challenges in maintaining momentum.
• The retail conditions showed a decline in discretionary tenant sales, particularly in apparel, which decreased by 4.2%.
• There is ongoing pressure to curate and improve the portfolio, particularly with the remaining Mosaic tenancies.

Q & A Highlights

Q: Can you provide an update on the current look-through gearing level with your HPI ownership? A: The gearing level reflects our position as of December 31. With the divestment of Lake Macquarie Square and other activities, we expect our gearing to normalize over time. We believe cap rates have troughed, and with strong income growth, our gearing will be well managed moving forward. - Benjamin Ellis, Retail CEO

Q: What is driving the strong leasing spreads, and how do you manage tenant mix? A: The strong leasing spreads are due to our focus on curating a portfolio of high-quality assets with better sales densities and tenant mixes. This ongoing activity results in better quality outcomes, and we expect this trend to continue. - Benjamin Ellis, Retail CEO

Q: Can you elaborate on the remixing strategy and its impact on leasing spreads? A: Our remixing strategy focuses on transitioning away from discretionary or lower growth tenants to retail services and fresh food. This has resulted in strong leasing spreads for new leases at almost 6%. Incentives are around the 12-month mark but were slightly lower this half due to great leasing outcomes. - Benjamin Ellis, Retail CEO

Q: What are the strategic synergies and EPS accretion from the HPI acquisition? A: The HPI acquisition aligns with our strategy of superior NPI growth from net lease convenience retail. The portfolio offers long-term income growth without CapEx or leasing incentives. Fees are per market standard and included in our numbers. - Benjamin Ellis, Retail CEO

Q: How are current retail conditions affecting your portfolio, particularly with MAT growth? A: Despite a slight slowdown, MAT growth remains strong at 3.4%. Non-discretionary retail tenants grew at 4.5%, while discretionary tenants saw a decline. Our strategy focuses on curating assets towards non-discretionary retail, which is favorable given macroeconomic factors. - Benjamin Ellis, Retail CEO

Q: Is there any curation needed for the HPI portfolio, and how does Mosaic Brands impact earnings? A: We will review the HPI portfolio on a case-by-case basis, but it is a strong addition to our joint venture. Regarding Mosaic Brands, we have been reducing exposure and have plans for the remaining tenancies. The impact is negligible, and we see it as an opportunity for better tenant replacements. - Benjamin Ellis, Retail CEO

For the complete transcript of the earnings call, please refer to the full earnings call transcript.