Charter Hall Social Infrastructure REIT trades on 5.8% premium to its current NTA, quality portfolio retains strong property

Investment Thesis 

  • Trading at a slight premium to NTA which does not capture the full value of CQE, in our view.
  • Solid dividend yield.
  • Quality assets with strong property fundamentals such as 100% occupancy and WALE of 14.6 years.
  • Majority of leases are triple-net leases.
  • CQE is a play on (1) population growth; (2) increasing awareness of early childhood education; (3) increasing the number of families with both parents working and hence demand for childcare services. CQE has increased its portfolio weighting towards social infrastructure assets.
  • CQE’s tenants possess strong financials 
  • Strong history of delivering continuing shareholder return and dividends.
  • Solid balance sheet position.
  • Strong tailwinds for childcare assets and social infrastructure assets.

Key Risks

  • Regulatory risks.
  • Deteriorating property fundamentals.
  • Concentrated tenancy risk, especially around Goodstart Early Learning.
  • Sentiment towards REITs as bond proxy stocks impacted by expected cash rate hikes.
  • Broader reintroduction of stringent lockdowns across Australia due to Covid-19. 

Performance of Property portfolio

  • Statutory profit of $207.7m, up $150.4m relative to the PCP. Operating earnings of $30.8m, was up +5.8% and equates to 8.5cpu, up +6.3%. 
  • Distribution of 8.4cpu, was up +12.0% on PCP.
  • CQE’s gross assets of $1.9bn, is up +28.2% since Jun-21. NTA of $3.78 per unit is up +16.3% since June 2021.
  • CQE retained a strong balance sheet with gearing of 30.0% (and look-through gearing of 30.8%), investment capacity of $200m, and no debt maturity until January 2025.
  • CQE retained a long WALE of 14.6 years, 100% occupancy with lease expiries within the next five years equating to a minimal 3.9% of portfolio income. 75% of CQE’s leases are now on fixed rent reviews resulting in a forecast WARR of 3.0%.
  • CQE acquired 24 assets for $192.7m with an average yield of 4.5% and average WALE of 13.4 years.

Company Profile 

Charter Hall Social Infrastructure REIT (formerly Charterhall Education Trust) (ASX: CQE) is an ASX listed Real Estate Investment Trust (REIT). It is the largest Australian property trust investing in early learning properties within Australia and New Zealand but recently widen its mandate to also invest in social infrastructure properties.

(Source: BanyanTree)

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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.