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Charter Hall Long WALE REIT

Team Veye | 09 Feb 2021 ASX - CLW
Charter Hall Long WALE REIT
Call Buy
Asx CLW

Charter Hall Long WALE REIT (ASX: CLW) (the REIT) is a real estate investment trust. The Trust invests in Australasian real estate assets that are predominantly leased to corporate and government tenants on long term leases. It consists of approximately 384 properties. The portfolio is diversified by geography and real estate sector, including office, industrial and retail properties. The Trust's investment objective is to provide investors with a stable and secure income and the potential for both income and capital growth through exposure to a portfolio with a long WALE. The Trust also has investments in joint venture entities. The Trust is managed by Charter Hall Group, an integrated property company (Profile source: Reuters)

From the Company Reports

Charter Hall Long WALE REIT 1H FY21 Results

Charter Hall Long WALE REIT (ASX: CLW) (the REIT) on 8 February 2021 announced its half year results for the period ending 31 December 2020 (1H FY21). Key financial and operational highlights for the period are:

(Chart source: TradingView)

Financial highlights:

  • Operating earnings of $73.6 million, or 14.5cps, up 3.6% on the prior corresponding period (PCP)
  • Statutory profit of $198.6 million
  • Distributions of 14.5cps, up 3.6% on PCP
  • NTA of $4.70, up 5.1% from $4.47 on 30 June 2020
  • Balance sheet gearing of 29.0% and look through gearing of 39.3%
  • $388 million of new equity raised

Operating highlights:

  • Portfolio weighted average lease expiry (WALE) of 14.1 years, up from 14.0 years on 30 June 2020
  • $4.5 billion property portfolio, up from $3.6 billion as of 30 June 2020 • $697 million of property acquisitions
  • $150 million net property valuation uplift
  • Portfolio cap rate firmed 24 bps from 5.42% on 30 June 2020 to 5.18%

(Graphic Source – Company Reports)

Valuations:

Overall, the total property portfolio increased by approximately $852 million for the period to $4.5 billion as of 31 December 2020, driven by $696 million of net acquisitions, $150 million in net property revaluations and capex. At the end of the period, the REIT’s diversified portfolio is 97.5% occupied and comprised 459 properties with a long WALE of 14.1 years. The portfolio weighted average capitalisation rate firmed 24 bps during the period to 5.18% as of 31 December 2020.

Strengthening the REIT’s capital position

During 1H FY21, CLW completed several capital management initiatives, including:

    • $388 million of equity raised during the period
    • Increased existing bank facilities by $150 million and extended the maturity of the increased facilities by 1.1 years
    • Charter Hall Exchange Investment Trust, in which CLW has a 50% interest, completed a A$300 million 10 year Medium Term Notes Issuance
    • Sale of a 5% interest in the securities of Waypoint REIT.

Following these capital management initiatives, the REIT has a long-dated weighted average debt maturity of 4.1 years and a weighted average hedge maturity of 4.2 years as of 31 December 2020.

(Graphic Source – Company Reports)

bp New Zealand acquisition approved by NZ Overseas Investment Office (OIO)

Charter Hall WALE Limited as responsible entity of the Charter Hall Long WALE REIT (ASX:CLW) on 22 December 2020 announced that the New Zealand Overseas Investment Office (OIO) had approved the acquisition of the bp New Zealand portfolio.

The acquisition, first announced on 10 September 2020, was of an interest in a portfolio of 70 Long WALE triple net leased (NNN) Convenience Retail properties leased to bp.

Acquisition of David Jones flagship Sydney CBD store

Charter Hall WALE Limited as responsible entity of the Charter Hall Long WALE REIT (ASX: CLW) (CLW or the REIT) on 22 December 2020 announced that it had exchanged contracts to purchase a 50% interest in the David Jones flagship “Elizabeth Street store”, located at 86-108 Castlereagh Street, Sydney, with frontages to Elizabeth, Castlereagh and Market Streets, for a purchase price of $255 million.

This iconic Sydney CBD property comprises 12 levels on a strategic 3,530sqm prime CBD retail site. The building comprises large floorplates of up to 2,925sqm, with excellent natural light to 3 elevations. David Jones, as vendor, had in recent years completed a significant capital works program which has created a world class showcase of department store retailing.

(Chart source: Barchart)

A Charter Hall Group (ASX: CHC or the Group) managed consortia acquired the property on a sale and leaseback transaction with David Jones, which will provide a 20-year, triple-net (NNN) lease, with minimum 2.5% per annum annual rent increases supplemented by an agreed turnover rent linked to sales performance.

The CHC managed consortia comprises a 50% interest held by CLW, a 25% interest held by the Charter Hall DVP partnership and 25% held by the Group.

Key Financial Metrics:

Peer Analysis

Company

Market cap

P/E (TTM)

P/BV (MRQ)

Total debt to capital (MRQ)

Payout ratio (5yr Avg.)

Aventus Group

1.58bn

26.72

1.16

0.3551

--

Centuria Industrial Reit

1.71bn

14.04

1.09

0.2843

68.72

Ingenia Communities Group

1.76bn

44.21

1.86

0.083

77.51

Waypoint REIT Ltd

1.98bn

6.99

1.06

0.3195

--

Charter Hall Retail REIT

2.06bn

34.25

0.9622

0.2794

86.4

Cromwell Property Group

2.12bn

11.61

0.8175

0.4584

69.56

Abacus Property Group

2.19bn

20.64

0.8164

0.3139

52.9

Growthpoint Properties Australia Ltd

2.49bn

9.16

0.8832

0.3551

49.4

Shopping Centres Australasia Property Group

2.57bn

25.88

1.07

0.3134

65.28

BWP Trust

2.60bn

11.85

1.26

0.1836

52.72

Charter Hall Long WALE REIT

2.69bn

15.57

1.05

0.2752

90.5

 

  • Debt Level: CLW's debt to equity ratio (31.5%) is considered satisfactory.
  • Interest Coverage: CLW's interest payments on its debt are well covered by EBIT (9.5x coverage).
  • PB vs Industry:  CLW is a good value based on its PB Ratio at 0.9x compared to the AU REITs industry average at 1.1x.
  • PE vs Industry: CLW is good value based on its PE Ratio at 9.7x compared to the AU REITs industry average at 17.5x
  • PE vs Market: CLW is good value based on its PE Ratio at 9.7x compared to the Australian market at 23.8x
  • PEG Ratio: CLW is a good value based on its PEG Ratio (0.5x)
  • Short Term Assets: CLW's short term assets (A$79.5M) exceed its short term liabilities (A$61.6M).
  • Earnings Trend: CLW's earnings have grown significantly by 45.2% per year over the past 5 years.
  • Accelerating Growth: CLW's earnings growth over the past year (94.2%) exceeds its 5-year average (45.2% per year).
  • Earnings vs Industry: CLW earnings growth over the past year (94.2%) exceeded the REITs industry -5.3%.
  • Notable Dividend: CLW's dividend at 6.02% is higher than the bottom 25% of dividend payers in the Australian market at 2.03%.
  • High Dividend: CLW's dividend at 6.02% is in the top 25% of dividend payers in the Australian market at 5.07%

 

Charter Hall Long WALE REIT (ASX: CLW) 
Stock Overview
Sector Trading
Risk Low to Medium
Market Cap $2.685 billion
Share Volume 571.4 million
EPS (FY) $0.29
PE RATIO 16.49.
Yearly Dividend Yield  6.06%.
Target Price (s) T1 $5.25    T2 $5.90
Stop Loss $4.40
Recommendation BUY
52 weeks High $5.97
52 weeks Low $3.52
Chairman Mr Peeyush Gupta
Executive Director  Mr David William Harrison
   

Market Risk Analysis

The property cycle and Structural changes in the current and future macro-economic environment 

  • Credit Risk
  • Foreign Exchange Risk
  • Liquidity Risk. 
  • Asset-Level Risk.

Technical Analysis

The stock has maintained its upside from the month of March 2020 to May 2020. The formation of a pin bar (as indicated on the charts) drifted the prices down, reversing the trend. The formation of the “Doji candle” (Indicated on the chart) at the lower band of the Bollinger indicated uncertainty. The trend reversed, with the “Higher High” formation (indicated by the arrow on charts) well supported by RSI and MACD (Entering into positive territory).

(Chart source: TradingView)

Veye’s Take

CLW further diversified and improved the resilience of its portfolio in 1H FY21 and increased the portfolio WALE. It also extended its partnership with bp, acquiring an interest in 70 Long WALE triple-net (NNN) convenience retail properties in New Zealand. The acquisition of Telstra’s Pitt Street, Sydney CBD telco exchange and acquiring a 50% interest in the David Jones flagship Elizabeth Street store in the Sydney CBD further diversified the CLW portfolio collectively. The Company continued its focus on NNN lease properties with a high underlying land value which should provide long term growth prospects. Its Pro-forma balance sheet gearing of 29.0% as of 31 December 2020 remained within the target 25–35% range. The Company reaffirmed its FY21 Operating EPS guidance of no less than 29.1 cents per security, reflecting Operating EPS growth over FY20 of no less than 2.8%, based on information currently available and barring any unforeseen events. Veye recommends a “Buy" on “Charter Hall Long WALE REIT” at the current price of $4.70


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