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Edited Transcript of CLW.AX earnings conference call or presentation 7-Feb-21 11:00pm GMT

·31 min read

Half Year 2021 Charter Hall Long WALE REIT Earnings Call Feb 8, 2021 (Thomson StreetEvents) -- Edited Transcript of Charter Hall Long WALE REIT earnings conference call or presentation Sunday, February 7, 2021 at 11:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Avi Anger Charter Hall Long WALE REIT - Fund Manager * Scott Nicholas Martin Charter Hall Social Infrastructure REIT - Head of Diversified Finance of Charter Hall Retail Management Limited ================================================================================ Conference Call Participants ================================================================================ * Grant McCasker UBS Investment Bank, Research Division - Head of Australian Real Estate Research Team, Executive Director & Equities Analyst of Real Estate * Richard Barry Jones JPMorgan Chase & Co, Research Division - VP * Simon Chan Morgan Stanley, Research Division - VP & Equity Analyst * Stuart McLean Macquarie Research - Research Analyst * Suraj Nebhani Citigroup Inc. Exchange Research - Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for standing by, and welcome to the Charter Hall Long WALE REIT 2021 Half Year Results Briefing. (Operator Instructions) Please note that this conference is being recorded today, Monday, 8th of February. I'd now like to hand the conference over to your host today, Mr. Avi Anger, Fund Manager, CLW. Thank you, sir. Please go ahead. -------------------------------------------------------------------------------- Avi Anger, Charter Hall Long WALE REIT - Fund Manager [2] -------------------------------------------------------------------------------- Good morning, everyone, and welcome to the Charter Hall Long WALE REIT results presentation for the half year to 31 December 2020. Presenting with me today is Scott Martin, Head of Finance for the Long WALE REIT. The format for today's presentation is that I will start with key highlights for the period. You will then hear from Scott, who will provide an overview of the financial performance of the REIT. I will then return to provide an operational update and portfolio overview for the period and provide an update regarding earnings guidance for FY '21. We will then offer the opportunity for questions. Turning now to Slide 4 and key highlights for the period. I'm pleased to report that we've completed a half year of strong operating performance, delivering operating EPS of $0.145 per security, up 3.6% over first half FY '20 and delivered distribution per security of the same amount. We achieved $150 million net valuation uplift at December, which has resulted in an NTA of $4.70 per security, an increase of 5.1% since June 2020. Our WALE is now 14.1 years, up from 14 years at 30 June. This was the result of long WALE acquisitions agreed during the period. The proportion of triple-net leases in our portfolio has increased to 55% by net income. This is a very important and unique feature of our portfolio given that under a triple-net lease structure, the tenant is responsible for all outgoings, maintenance and capital expenditure. During the period, we invested $697 million in 74 properties across long WALE single-tenant retail and our telco exchanges. Balance sheet gearing of 29% is within our target gearing range of 25% to 35%, and we have a weighted average debt maturity of 4.1 years. Turning now to Slide 5. We have actively managed the portfolio to extend the portfolio WALE, improve the tenancy profile, improve diversification and deliver earnings growth. Our portfolio continues to be diversified by tenant, industry, geography and property types, which contributes to the stability of our cash flow. We've expanded the number of properties in the portfolio to 459 at 31 December, with a proportion of properties in our portfolio located on the Eastern Seaboard of Australia increasing to 75%. We've increased the WALE of our portfolio to 14.1 years at December with a positive impact coming from the 16-year average WALE of properties acquired. At December 2020, CLW properties were leased to 55 tenants across a broad range of industries. We have strengthened the quality and diversity of our tenants with the addition of new properties leased to BP, Telstra, Bunnings and Endeavour Drinks Group and the inclusion of David Jones following our acquisition of the David Jones flagship Elizabeth Street store in the Sydney CBD. We provided guidance at the start of the financial year of operating earnings of no less than $0.291 per security, and we are on track to deliver on this guidance, having delivered operating earnings of $0.145 per security for the half year. Importantly, since listing in November 2016, CLW's total shareholder return has outperformed the S&P ASX 200 A-REIT Index. Turning to Slide 6. On this slide, I'd like to highlight the transformation of our portfolio since our IPO in November 2016. CLW has delivered a strong return on equity of 10.6% per annum since IPO. Over the past 4 years, we have grown the property portfolio from $1.25 billion to $4.5 billion today with the addition of high-quality, long WALE assets that have diversified income from a broad range of industries. Triple net leases as a proportion of our portfolio has increased from 23% at IPO to 55% today. The WALE of the portfolio has increased from 12.1 years at IPO to 14.1 years today, even with the 4-year passage of time, reinforcing how active portfolio curation can reduce risk via WALE extensions. We have increased our investments located on the Eastern Seaboard of Australia with the proportion increasing from 48% to 75%. Finally, we have increased our distributions every year since IPO. I would now like to hand over to Scott, who will provide an overview of the financial performance of the REIT. -------------------------------------------------------------------------------- Scott Nicholas Martin, Charter Hall Social Infrastructure REIT - Head of Diversified Finance of Charter Hall Retail Management Limited [3] -------------------------------------------------------------------------------- Thank you, Avi. The REIT's key financial metrics for the half year ended 31 December 2020 are set out on Slide 8. The REIT delivered operating earnings of $73.6 million or $0.145 per securities for this half year and similarly declared a distribution per security of $0.145 for the same period. Balance sheet gearing as at 31 December 2020 was 29%, which has been adjusted to include the committed acquisitions of David Jones, Sydney and Bunnings Caboolture, which had not yet settled as at the reporting date. Balance sheet gearing continues to remain within the target range of 25% to 35%. Movements in all other key metrics shown on this slide result from portfolio-enhancing activities undertaken during the period, which Avi will cover in the presentation. Turning to Slide 9, which provides a summary of the REIT's FY '21 half year results. Net property income has increased 39.5% compared to the prior reported period and has been driven by net acquisition activity, which has contributed $27.5 million of net property income. During the current reporting period, the REIT announced $697 million of new property acquisitions. In line with this acquisition growth, operating expenses, driven by higher debt to partially fund growth, has delivered resilient earnings outcomes. Operating earnings per security and distribution per security have both increased by 3.6% on the prior corresponding period to $0.145 per security, in line with our guidance range. Turning to Slide 10 and the REIT's balance sheet position at 31 December. Investment properties and equity-accounted investments increased by $367.1 million and $222.7 million, respectively, since 30 June, due to acquisition activity and valuation growth of $150 million. The net decrease in other assets is attributable to the divestment of the REIT's $101.2 million interest in Waypoint REIT, which was disposed of in July, which was then partially offset by increases in other assets relating to the $28.1 million GST refunds related to the Pitt Street, Sydney acquisition and the deposits paid for the David Jones, Sydney and Bunnings Caboolture assets. The $6.5 million increase in the provision for the quarterly distribution results from the growth in operating earnings arising from acquisition activity and annual rent escalations. Acquisitions were funded through a combination of debt and equity. During the year, balance sheet debt -- drawn debt increased by $15.9 million, and $388 million of new equity was raised. NTA per security has increased 5.1% from $4.47 at 30 June 2020 to $4.70 at 31 December 2020, driven by the $150 million increase in property valuations. A summary of debt and hedging is presented on Slide 11. During the current reporting period, the REIT increased its balance sheet debt capacity by $150 million from $1.030 billion to $1.180 billion with the upsize and maturity extension of one of the REIT's bilateral facilities. The REIT has cash and undrawn debt capacity of approximately $90 million, which has been calculated based upon cash and undrawn debt as at 31 December 2020, adjusted for the acquisitions of David Jones, Sydney and Bunnings Caboolture, Brisbane as well as for the GST refund owing on the Pitt Street, Sydney acquisition. In addition to the balance sheet debt facilities, the REIT's share of joint venture debt facilities increased by $12 million from $698 million to $710 million as a result of an increase to the LWIP portfolio bank debt facility. During the current reporting period, the Charter Hall Exchange Investment Trust, which owns an interest in the Telstra exchanges portfolio and in which the REIT has a 50% interest, completed a AUD 300 million 10-year medium-term notes issuance. The proceeds of the MTN issuance we used to partly repay the existing debt facility with a major Australian bank. At 31 December 2020, the REIT had $1.53 billion of drawn debt calculated on a look-through basis. Balance sheet gearing was 29%, and look-through gearing was 39.3%, which have both been calculated based upon drawn debt at 31 December adjusted for the funding of the committed acquisitions of David Jones, Sydney and Bunnings Caboolture. The difference between balance sheet and look-through gearing ratios relates to the REIT share of joint venture debt facilities, each secured by long WALE assets and strong covenants. The increase in balance sheet debt, together with the minor increases in joint venture debt facility, has increased the REIT's facility limits to $1.9 billion on a look-through basis. The weighted average cost of debt for the period was 2.4%, which includes line fees on undrawn capacity. And the weighted average debt maturity at the end of the period is 4.1 years. The level of hedging at 31 December 2020 was $1.1 billion calculated on a look-through basis, which reflected a hedge position of 70.6% and a weighted average hedge maturity of 4.2 years. I will now hand back to Avi to provide an operational update and portfolio overview. -------------------------------------------------------------------------------- Avi Anger, Charter Hall Long WALE REIT - Fund Manager [4] -------------------------------------------------------------------------------- Thank you, Scott. Turning now to Slide 13. An important part of our strategy is to enhance the diversification and quality of our portfolio through acquisitions. During the half year, we acquired $697 million of property diversified across investments in long WALE single-tenant retail and telco exchange properties. The combined acquisitions this period featured an accretive average WALE of 16 years. The acquisitions include the following: the 20-year triple net lease David Jones flagship Elizabeth Street Store; the 20-year WALE triple-net lease BP New Zealand portfolio of 70 convenience retail properties; a new Bunnings property developed -- to be developed in Caboolture, Queensland with a 12-year lease to Bunnings on completion of the development; we grew our LWIP portfolio of Endeavour-leased hotels and bottle shops with the addition of The Parap Tavern, Darwin, which features a 15-year lease to Endeavour Drinks Group; and the 10-year triple-net lease Telstra Pitt Street, Sydney CBD telco exchange. These acquisitions demonstrate our focus on transactions offering attractive, long-term risk-adjusted returns but also mindful of downside protection, investing in critical properties with strong tenant credit, favoring large companies and properties with high underlying land value. For example, the David Jones Elizabeth Street property is located on a 3,500 square meter prime CBD land with excellent natural light to 3 elevations. This unique property features large floor plates of almost 3,000 square meters and has recently undergone a major refurbishment. There's a lot of value in the land and 33,000 square meters of building on the site that should grow in value for our investors over time. Another recent acquisition is the Telstra Pitt Street Exchange. This property is a high-value strategic site in the Sydney CBD with significant value embedded in the land and existing buildings on the site. The property features a long triple-net lease to Telstra. And in the long term, when Telstra vacates the property, there are a variety of possible options for the redevelopment of the property. Importantly, some of the acquisitions completed this half, we secured off-market, demonstrating the strength and benefits which Charter Hall platform provides to CLW. As a result of these acquisitions, we extended our relationship with some existing portfolio tenants with the acquisition of properties leased to BP, Telstra, Endeavour Drinks Group and Bunnings. Turning now to Slide 14. In the following slides, I'd like to provide an overview of our portfolio and outline some key attributes of the portfolio. Slide 14 is our portfolio overview. During the period, we were able to grow and enhance the portfolio through acquisition and positive valuation movements. The value of the portfolio is now approximately $4.5 billion. During the period, we have further enhanced the portfolio with $697 million of acquisitions. These acquisitions have increased the number of properties of the REIT to 459. Our WALE has increased as a result of the acquisitions completed in the period with a long-dated portfolio WALE of 14.1 years at December. The properties in the portfolio feature a blend of annual lease rent reviews, both fixed and CPI-linked. Our average fixed reviews are 3.1%, while our CPI-linked leases provide a hedge against the potential of an increase in inflation in the future. Our portfolio has occupancy of 97.5%, and the portfolio average cap rate is 5.18%. Turning now to Slide 15 and an outline of our tenant customers and the tenant diversification of the REIT. Our portfolio of long WALE properties are leased to high-quality tenants, including Telstra, Commonwealth and state governments, BP, Woolworths, Ingham's and Coles. The acquisitions completed during the period further increased our exposure to some of these high-quality tenants, while the introduction of new tenants in the period further diversifies our tenant base. Turning to Slide 16. On the following couple of slides, I'd like to outline the resilience and strength of the tenants in our portfolio. Slide 16 outlines the credit rating of tenants in our portfolio. 73% of the parent entity of tenants in our portfolio are independently rated as investment grade. The vast majority of nonrated tenants include government, ASX-listed and large corporations. Turning to Slide 17 and the industry diversification of our tenant customers. Within our overall portfolio, approximately 99% of tenants are ASX-listed, government or multinational corporations, with the vast majority of these tenants operating in nondiscretionary industries. For example, the government, including the ATO and Australia Post, are an example of our nondiscretionary tenant exposure. We also have a high proportion of tenants operating in the nondiscretionary grocery and food sectors, such as Woolworths, Coles, Ingham's, Arnott's and Metcash. Turning to Slide 18. And as can be seen from the chart on this slide, the REIT's portfolio has a long-dated lease expiry profile and reflects a low-risk position relative to our peers in the sector. Our portfolio WALE has increased from 14 years to 14.1 years over the past 6 months despite the passage of time. As can be seen from the chart on this slide, our portfolio has very little expiry over the next 3 years, and we continue to work to push out our expiry profile as far as possible to the right of this chart both through acquisition and negotiating lease extensions with our tenant customers. Turning now to Slide 19 and environmental, social and corporate governance. We are very focused on implementing our climate change strategy across our portfolio. This includes investing in properties to ensure they are resilient to future impacts and transitioning to a low-carbon economy. We are pleased with the recognition we have received in the GRESB 2020 survey in relation to our high level of corporate governance. In the latest Green Star assessment, we've improved the Green Star rating across our portfolio, and we continue to investigate ways in which we can continue to improve on these results. We are also partnering with tenant customers on energy management and renewable energy initiatives across our office and industrial properties. Another important initiative is our focus on modern slavery. We've completed our modern slavery statement, and we are reviewing the suppliers in our supply chain to identify where potential risks lie and how we address these risks. These preceding slides demonstrate the resilience and strength of our portfolio. Our portfolio WALE, quality tenants and proportion of triple-net leases provides better downside protection and lower volatility of our cash flow. Our approach has clearly produced more resilient income streams, resulting in higher quality earnings. This, together with our focus on maintaining a strong and flexible balance sheet, has put us in a very strong position today. Turning now to Slide 21. I would now like to provide an update on our earnings guidance for FY '21. The REIT confirms that based on information currently available and barring any unforeseen events, CLW provides FY '21 operating EPS guidance of no less than $0.291 per security, reflecting operating EPS growth over FY '20 of no less than 2.8%. The target distribution payout ratio remains at 100% of operating earnings. That concludes the presentation, and I would now like to invite questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question comes from Stuart McLean from Macquarie. -------------------------------------------------------------------------------- Stuart McLean, Macquarie Research - Research Analyst [2] -------------------------------------------------------------------------------- A couple of questions from me. First of all, are you able to give an update, please, on the strategy at Bowen Hills? The asset appears to be 100% vacant now. So what's the -- is there a leasing plan there? Or are you looking to divest the asset? And secondly, is there expected to be any earnings come through at all in the second half of 2021, Avi, if the bank guarantee's all drawn down on, please? -------------------------------------------------------------------------------- Avi Anger, Charter Hall Long WALE REIT - Fund Manager [3] -------------------------------------------------------------------------------- Stuart, thanks for your questions. So look, in relation to Edmonstone Road, Bowen Hills, Virgin left that property around September of 2020. And we've embarked -- we've been embarking on, I guess, a dual leasing and sale program. We have received some offers to sell the property, but they're not sort of at the level that we wanted -- we would have sort of entertained them. We've also been running a leasing strategy on that property. And pleasingly, notwithstanding the current environment we're in, we have had some good interest in relation to the leasing of that property either in whole or in part, which we're progressing with at the moment. So look, the leasing is our #1 focus right now, and we're hopeful we can get an outcome over the next few months to lease -- to get some leasing done at the property. The bank guarantee, the security under that lease runs out until around February of this year. And then our guidance for '21 assumes that there's then no income for the balance of '21, and that's already in our numbers. -------------------------------------------------------------------------------- Stuart McLean, Macquarie Research - Research Analyst [4] -------------------------------------------------------------------------------- Great. And the offers, were they at book value or below book value? -------------------------------------------------------------------------------- Avi Anger, Charter Hall Long WALE REIT - Fund Manager [5] -------------------------------------------------------------------------------- They're sort of around book value. But I think at the moment, we're focused on a strategy of getting some leasing done, I think we'll achieve a better outcome. -------------------------------------------------------------------------------- Stuart McLean, Macquarie Research - Research Analyst [6] -------------------------------------------------------------------------------- Okay. Next one is just on the inflation hedge that you mentioned there, Avi. What's in guidance for inflation? I think at August, you're saying 1% inflation. Has that altered at all? -------------------------------------------------------------------------------- Avi Anger, Charter Hall Long WALE REIT - Fund Manager [7] -------------------------------------------------------------------------------- Still -- that's right. Still -- we're still forecasting 1% in our numbers, notwithstanding, I think, the RBA's forecasting 1.25%. We've conservatively -- in our rent reviews at 2.2%, in our presentation, there's 1% assumed for CPI. And we've -- our average fixed reviews are around 3.1%. -------------------------------------------------------------------------------- Stuart McLean, Macquarie Research - Research Analyst [8] -------------------------------------------------------------------------------- Okay. And another one just on the head count. Looking through the notes, it looks like COVID rent relief increased from about $300,000 to $500,000. What drove this increase? And when should it start to roll off? -------------------------------------------------------------------------------- Avi Anger, Charter Hall Long WALE REIT - Fund Manager [9] -------------------------------------------------------------------------------- I think it's just -- it took some time to process the requests that had come through. So look, the COVID, there's no more mandated relief required. So that will start rolling off. -------------------------------------------------------------------------------- Stuart McLean, Macquarie Research - Research Analyst [10] -------------------------------------------------------------------------------- Okay. And one final one for me. Just on -- you went through some of the strategy on acquisitions. Just wondering if you could just further explain what equity investors should look to see. The last 2 equity raisings and subsequent deployment of the equity and debt have been largely earnings neutral. The David Jones covenant is a bit different to Telstra and government tenants. So should we be looking for more nondiscretionary tenants that strategically improve the portfolio? Or are we looking for earnings accretion from acquisitions? Can you just go into that in a bit more detail, please? -------------------------------------------------------------------------------- Avi Anger, Charter Hall Long WALE REIT - Fund Manager [11] -------------------------------------------------------------------------------- Sure. Look, our focus when we look at acquisitions, there's a number of filters we look at: The quality of tenant; the WALE obviously is a very important one; growing income, so rent reviews that go up and income that goes up every year; the quality of the underlying property and the real estate that we're buying. These are all important considerations. We also -- obviously, earnings is very important for our investors, and we always are focused on growing earnings. So these are all important considerations we look at with all the transactions that we look at. We had some instances, in the most recent transactions, where we were subject to sort of FIRB or Overseas Investment Office, the OIO, in New Zealand approval, which sort of caused some delay between when we raised equity and when we were able to deploy them in those transactions. Now they will -- those transactions are going to be accretive into FY '22 and beyond. So that will grow earnings -- that will contribute to earnings growth. We just experienced some delay because of those factors that were sort of outside of our control. But earnings accretion is very important. And as I mentioned, the others -- all those other filters are very important, and they are the things we're always focused on. -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- Your next question comes from Suraj Nebhani from Citigroup. -------------------------------------------------------------------------------- Suraj Nebhani, Citigroup Inc. Exchange Research - Research Analyst [13] -------------------------------------------------------------------------------- Just a couple of questions from me. So you talked about the inflation in guidance at 1%. Can you talk about other underlying assumptions, please? So I'm just looking at the debt costs. I think in August, that cost was expected to be 2.5% for FY '21, but we are running at 2.4% now. And there has been some transactions as well recently. So I'm just wondering how do the other pieces hold up and in terms of other assumptions? -------------------------------------------------------------------------------- Avi Anger, Charter Hall Long WALE REIT - Fund Manager [14] -------------------------------------------------------------------------------- I don't know if there's too many other moving parts, Suraj. It's a pretty straightforward REIT. We've got obviously our debt, our assumptions around inflation. So the 2 moving parts, as you've highlighted, really for us, outside of sort of income that we -- income holes that we didn't foresee. But for the forecast income, it's -- really, the moving parts are inflation and our cost of debt, and the rest of it's pretty straightforward. So unless there's anything specific you wanted to ask about, I don't think there's too many other factors that are going to change our guidance. -------------------------------------------------------------------------------- Suraj Nebhani, Citigroup Inc. Exchange Research - Research Analyst [15] -------------------------------------------------------------------------------- I guess what I was asking is the debt costs have actually come down, not by a lot, but floating rates have declined as well. I'm just wondering why the guidance was not upgraded in light of that. And obviously, there have been transactions as well, which were accretive. -------------------------------------------------------------------------------- Avi Anger, Charter Hall Long WALE REIT - Fund Manager [16] -------------------------------------------------------------------------------- Yes. I think the cost of debt is, as a result, as you mentioned, of the base rates going down. And we have some of that book that's not hedged. So that obviously is a positive factor there. And then in our guidance, look, we've had to make some conservative assumptions around when we're likely to settle David Jones because we're subject to FIRB. So that's sort of where we've -- why the guidance is where it is. But it's no less than $0.291, which still remains the case. It's also a function of drawing debt as well, is that cost of debt is based on the drawn debt amount. -------------------------------------------------------------------------------- Scott Nicholas Martin, Charter Hall Social Infrastructure REIT - Head of Diversified Finance of Charter Hall Retail Management Limited [17] -------------------------------------------------------------------------------- Yes. So just on the cost of debt, Avi, it's 2.4% as it's drawn today. Like on a fully drawn basis, it's 2.2%, and our incremental cost of debt is circa 1%. But given we're pretty much fully drawn or close to it, the 2.4% is pretty accurate. -------------------------------------------------------------------------------- Suraj Nebhani, Citigroup Inc. Exchange Research - Research Analyst [18] -------------------------------------------------------------------------------- Okay. All right. And just on Virgin, Avi, I think -- maybe I don't recall this correctly. But from memory, I think in the August results, you were talking about income being included till December. So has that changed slightly because Virgin might be left at the end of September versus earlier? Or like has the guarantee changed there slightly? Or was it always until February? -------------------------------------------------------------------------------- Avi Anger, Charter Hall Long WALE REIT - Fund Manager [19] -------------------------------------------------------------------------------- No. I think -- yes. No, it's always been around until February. So -- and that's pretty consistent, I think, with what we'd said previously. But yes, look, if -- yes, I can't add too much more than that. -------------------------------------------------------------------------------- Suraj Nebhani, Citigroup Inc. Exchange Research - Research Analyst [20] -------------------------------------------------------------------------------- Okay. And just finally, obviously, you've had a strong half of revaluations. Can you talk about what the outlook is for asset values? -------------------------------------------------------------------------------- Avi Anger, Charter Hall Long WALE REIT - Fund Manager [21] -------------------------------------------------------------------------------- Across all asset classes at the moment, the outlook is very positive. There's a good demand we're seeing across our business more broadly at Charter Hall, and I get to see what's happening in not just the listed market but the wholesale markets as well. And there's a lot of institutional demand for all the types of assets that we own in CLW. Even long WALE, new office buildings, there's good institutional demand for those as well. Obviously, industrial is very, very strong and our -- things like our petrol stations and pubs. Everything from at the single-asset level, mom-and-dads bidding at auctions is pushing yields to the sort of, in some instances, below 4%, in the 3s. And then for portfolios, there's a lot of demand as well. So look, across all our assets, the type of assets we own, I think there's very strong demand, which I think augurs well for assets -- asset values going forward in this low interest environment we're in. -------------------------------------------------------------------------------- Operator [22] -------------------------------------------------------------------------------- Your next question comes from Simon Chan of Morgan Stanley. -------------------------------------------------------------------------------- Simon Chan, Morgan Stanley, Research Division - VP & Equity Analyst [23] -------------------------------------------------------------------------------- I just want to follow up on a couple of questions that's been asked. Firstly, in your guidance, how many months of David Jones contribution do you have factored in? -------------------------------------------------------------------------------- Avi Anger, Charter Hall Long WALE REIT - Fund Manager [24] -------------------------------------------------------------------------------- We've got a pretty conservative assumption on that, Simon, that we sort of settled by the end of Q1 of this calendar year. So that's sort of what's in our guidance, around that level at the moment. -------------------------------------------------------------------------------- Simon Chan, Morgan Stanley, Research Division - VP & Equity Analyst [25] -------------------------------------------------------------------------------- Okay. So about 3 months' worth of -- in your $0.29, okay. And then just in relation to the cost of debt, you're now about 2.4% drawn today, et cetera. Are you implying that, that's probably going to be the same interest rate for the second half of FY '21, barring major movements in base rate? -------------------------------------------------------------------------------- Avi Anger, Charter Hall Long WALE REIT - Fund Manager [26] -------------------------------------------------------------------------------- I'll let Scottie answer that one. You're on mute. -------------------------------------------------------------------------------- Scott Nicholas Martin, Charter Hall Social Infrastructure REIT - Head of Diversified Finance of Charter Hall Retail Management Limited [27] -------------------------------------------------------------------------------- The incremental cost of debt is about 1% from this point onwards. But on a fully drawn basis, it averages out to 2.2%. So yes, it can move about. But 2.2% to 2.4% is accurate for your modeling. -------------------------------------------------------------------------------- Simon Chan, Morgan Stanley, Research Division - VP & Equity Analyst [28] -------------------------------------------------------------------------------- And Avi, were there any major leasing deals done this half worth talking about? I remember last year, you guys did a stack with SUEZ and Linfox, et cetera. Was it pretty quiet in the December half? I just can't seem to find any commentaries around that in the slide. -------------------------------------------------------------------------------- Avi Anger, Charter Hall Long WALE REIT - Fund Manager [29] -------------------------------------------------------------------------------- That's right. It was pretty quiet. We're a long WALE REIT. We don't hope for -- we don't have to do too many leasing deals, so nothing to report on that front. -------------------------------------------------------------------------------- Operator [30] -------------------------------------------------------------------------------- (Operator Instructions) Your next question comes from Grant McCasker of UBS. -------------------------------------------------------------------------------- Grant McCasker, UBS Investment Bank, Research Division - Head of Australian Real Estate Research Team, Executive Director & Equities Analyst of Real Estate [31] -------------------------------------------------------------------------------- Avi, just one question. Can you talk about the net cash expiry? I realize it's a few years away just yet. But -- and I guess if they were to move, that would be coming to market a few years prior to that. Are you able to give any update or any discussions you're having with them? -------------------------------------------------------------------------------- Avi Anger, Charter Hall Long WALE REIT - Fund Manager [32] -------------------------------------------------------------------------------- Look -- yes. Look, the status on Metcash is, as I mentioned previously, across the Charter Hall Group, we've got a really strong relationship with Metcash. We own, in a number of different funds across our business, a number of their distribution centers across the country. We're talking to them regularly and meeting with them regularly, and Perth's definitely on the agenda. So as you say, we've got 3 years on that, so some time still running on that lease. And hopefully, we get a positive outcome with them in the near future on a renewal. That's the focus, obviously. -------------------------------------------------------------------------------- Operator [33] -------------------------------------------------------------------------------- The next question comes from Richard Jones of JPMorgan. -------------------------------------------------------------------------------- Richard Barry Jones, JPMorgan Chase & Co, Research Division - VP [34] -------------------------------------------------------------------------------- Avi, just in relation to Huntingwood, I think you've previously talked about opportunities to expand on excess land. Can you give us an update whether anything has progressed there and whether there's any other kind of excess land opportunities where you've had much progression over the half? -------------------------------------------------------------------------------- Avi Anger, Charter Hall Long WALE REIT - Fund Manager [35] -------------------------------------------------------------------------------- Richard, look, I think what we mentioned at the time that we acquired the Arnott's facility was that it was sort of -- there was a part of the land that wasn't developed. There was sort of some open space, and it could be -- there could be some potential there for future development. That's definitely the case. But Arnott's has a lease over the whole property. And it's something that if that was to happen, it'd be something that happens with Arnott's over time. But there's no update on that front. Across our portfolio, look, there's always development opportunities. Some lands definitely are underdeveloped. As we've announced when we acquired some of the properties in our portfolio, we -- in some instances, we've acquired them for virtually land value, and there's good upside. But in all those instances, the tenants have leases over 100% of the land on long leases. So it would be something that would need to happen in the short term in conjunction with tenants. And that possibility may arise as we can realize value together with our tenants over time. We've done that a little bit in our pub portfolio, where we've sold properties together with our tenant and reinvested into others. And we can do that across our portfolio. But we can -- happy to step through that with you in more detail asset-by-asset, but there's definitely opportunities across the portfolio, yes. -------------------------------------------------------------------------------- Richard Barry Jones, JPMorgan Chase & Co, Research Division - VP [36] -------------------------------------------------------------------------------- Okay. Somewhat 2 more quick ones. So Bowen Hills, if you get that asset leased up, is that likely a lease-up and sell asset? Or is it likely to be retained, do you think? -------------------------------------------------------------------------------- Avi Anger, Charter Hall Long WALE REIT - Fund Manager [37] -------------------------------------------------------------------------------- A function of the type of leasing we do. So we're a long lease REIT. So if it's a long lease over the whole property to a high-quality tenant, it may be worth retaining. If it's not, then it may be worth looking at some sort of disposing once we've done some leasing. So we keep an open mind, depending on what we're able to secure there. -------------------------------------------------------------------------------- Richard Barry Jones, JPMorgan Chase & Co, Research Division - VP [38] -------------------------------------------------------------------------------- Okay. And then just finally, more broadly, what does your acquisition pipeline look like? And can you maybe give some color as to just the competitive nature of the type of assets you're going for at the moment? -------------------------------------------------------------------------------- Avi Anger, Charter Hall Long WALE REIT - Fund Manager [39] -------------------------------------------------------------------------------- Well, we're always looking at a range of assets. There's nothing immediately on the horizon or anything we're in due diligence in at the moment. Look, the landscapes, it's competitive. As I mentioned earlier, there's a lot of people looking for the type of assets we own. We're in a very good position, as you can see by the sort of deal flow that we've generated over the last few years. We do see a lot of things off-market as a result of being part of the Charter Hall Group, and we continue to see some good -- sort of particularly in the sale and leaseback space. I'm hopeful we see some good opportunities in that space in the year ahead. But yes, I mean that's sort of what we're looking for and what we're focused on. So that's sort of -- that's where we stand at the moment, but nothing immediate to speak of in -- on that front. -------------------------------------------------------------------------------- Operator [40] -------------------------------------------------------------------------------- There are no further phone questions at this time. I'll now hand back to Mr. Avi Anger for webcast questions. -------------------------------------------------------------------------------- Avi Anger, Charter Hall Long WALE REIT - Fund Manager [41] -------------------------------------------------------------------------------- Yes. Okay. Yes, we've got a question on the webcast from [Ben Margo]. Are there any assets potentially for sale with capital management possibilities to follow? Look, I mentioned Virgin. That's depending on the leasing we do there. That's a possibility. There's no other immediate assets for sale, but we always are looking -- reviewing our portfolio. And we'll continue to do that for any potential divestments. Was there any other questions, Phil? Do we have a minimum hurdle rate for cap rates at which we'd be comfortable transacting in this environment? Look, it's going to be on a deal-by-deal basis. We'll look at opportunities depending, as I mentioned, the filters we look at. Price is obviously one, but there's a number of others we look at. And we'll continue to sort of apply those filters when looking at transactions. So there's no set cap rate that we set, but we obviously want deals to be high -- long WALEs, high-quality tenants, good underlying property and accretive over the medium term to earnings. So that's definitely a focus. I think they are all the questions from the webcast. So back to you, operator. -------------------------------------------------------------------------------- Operator [42] -------------------------------------------------------------------------------- That does conclude our conference for today. Thank you for participating. You may now disconnect.