U.S. Markets closed

Edited Transcript of FET.AX earnings conference call or presentation 7-Aug-19 12:00am GMT

Full Year 2019 Charter Hall Education Trust Earnings Call

Sep 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Charter Hall Education Trust earnings conference call or presentation Wednesday, August 7, 2019 at 12:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Nicholas James Anagnostou

Charter Hall Education Trust - Head of Social Infrastructure Funds & Executive Director of Charter Hall Social Infrastructure Ltd

* Travis Scott Butcher

Charter Hall Education Trust - General Manager of Finance - Diversified

================================================================================

Conference Call Participants

================================================================================

* Cameron Bell

Canaccord Genuity Corp., Research Division - Senior Industrials Analyst

* Gareth James

Morningstar Inc., Research Division - Senior Equity Analyst

* Krzysztof Kaczmarek

JP Morgan Chase & Co, Research Division - Analyst

* Richard Barry Jones

JP Morgan Chase & Co, Research Division - VP

* Sky Walker

Alder & Partners Private Wealth Management - Investment Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for standing by, and welcome to the Charter Hall Education Trust 2019 Full Year Results Briefing. (Operator Instructions) Please note that this conference is being recorded today, Wednesday, 7th of August 2019.

I would now like to hand the conference over to your host today, Mr. Nick Anagnostou, Head of Social Infrastructure Funds. Thank you, sir. Please go ahead.

--------------------------------------------------------------------------------

Nicholas James Anagnostou, Charter Hall Education Trust - Head of Social Infrastructure Funds & Executive Director of Charter Hall Social Infrastructure Ltd [2]

--------------------------------------------------------------------------------

Good morning, and welcome. I'm Nick Anagnostou, and I'm joined today by Travis Butcher to present CQE's full year results presentation. I'll commence the presentation with the key highlights and discussion on CQE's transactional activity and the broadening of CQE's strategy, and Travis will provide an update on our financial metrics. I'll then return to cover the aspects of portfolio activity, our observations of the real estate market early learning sector followed by a summary for CQE's outlook for FY '20. Thank you for joining us.

Commencing on Slide 4. The performance of the 3 key disciplines, asset portfolio and financial management remains strong and are consistent with CQE's investment objective of providing investors with stable and secure income with a focus on income and capital growth. The FY '19 result reflects this focus in maintaining and improving CQE's portfolio in order to provide investors with a sustainable, long-term growth together with sensible balance sheet metrics. A mix of investment through acquisitions and reinvestment through developments and sales as well as broadening of CQE's investment mandate to be discussed today is expected to provide investors with quality assets that remain consistent with CQE's successful formula. It also recognizes the opportunity to strengthen CQE's income sustainability and resilience in the long term.

In 2019, CQE completed 6 more childcare developments to have a value of $30.7 million, added growth to the portfolio through 20 further acquisitions and continued our portfolio curation with the disposal of 7 assets.

The crucial investment attributes to maintaining long-term returns, high occupancy, a long WALE and underlying market rental growth is reflected in CQE's earnings as well as NTA growth. CQE's WALE remained steady almost 10 years, the same as a year ago, and valuations were up by $36 million or 10 basis points on average. The under-rented nature of the portfolio is evident in the over 5% increase achieved in market rent reviews as well as continued demand for our assets with 11 of 11 options exercised during the period.

Earnings were up to $44.2 million or 5.5% for the year, NTA up 6.5% and post the successful capital raising, gearing has been reduced to 23.1% with an extended debt maturity moving out to almost 4 years.

Turning to Slide 5. CQE's performance remained strong with distribution growth and NTA growth averaging 5.9% and 14.7%, respectively, over the last 5 years. NTA growth was 6.5% for the year, and we expect asset value growth being more reliant on income growth moving forward. However, recent reductions in the cost of debt as well as an improving market sentiment may spur investment markets yet again. Appropriate portfolio curation has had some dampening impact on earnings growth. However, dispositions are expected to provide a greater overall return to the Trust as well as lowering our earnings and NTA volatility.

We still see the potential for yield compression inside the CQE portfolio, and this is driven by the quality of the new stock being developed and acquired, replacing less efficient, typically smaller assets that are being sold on average at premiums to book value. Our investment approach is to remain disciplined and focused on capturing the smaller but cumulative cadence from every development and leasing opportunity. This compound will match with our long-term triple net leases, adding further to the earnings base that has little leakage to vacancy, CapEx or incentives.

Turning to Slide 6. During FY '19, CQE maintained its approach on focusing on population growth, strengthening demand factors and demographics and increasing economic activities to investment criteria. These are the factors that support childcare and land value growth in the long term. As indicated in previous years, CQE began reweighting its portfolio in advance of last year's introduction of the Child Care Subsidy scheme towards locations that better suited what is a recalibrated level of demand. We added 19 new childcare opportunities including the CCLP transaction which adds further diversity to the tenant register now with 4 new tenants. This reflects our market coverage as well as demand for our product and capital. New transactions push initial lease terms out towards 20 years, mostly on triple net basis and with annual rent reviews of 3% or more. The average yield of center acquisition was 6.4% and 6.8% for developments. Importantly, the demand ratio is well above 1:5 on average, and new locations had an average SEIFA rating of 7.8. These attributes support childcare businesses as well as land value growth in the long term. The geographical spread of our acquisitions reflects areas of increasing demand, in particular, Victoria and Western Australia as the statistics indicate as well as what appears to be increasing fees in Queensland.

CQE's development pipeline remains strong. It now has a balance toward third-party developers and purchases upon completion. We've added a new portfolio in the CCLP transaction as announced in March as well as further existing center acquisitions, which match the CQE formula. We have further transactions in the pipeline for 11 more centers that, should they be finalized, could complete between November '19 and mid-2020.

Turning to Slide 7. CQE announces today a broadening of its investment mandate to include additional social infrastructure subsectors in addition to the existing commitment to childcare. The objective is to increase CQE's long-term income sustainability and, therefore, resilience from economic cycles through the introduction of further assets to the portfolio that are typically leased to government, ASX-listed and large corporate entities. CQE's primary focus will remain in the childcare sector. The broadening of the mandate is designed to strengthen and complement CQE's income and investment profile to provide greater opportunity for earnings and capital growth. Assets and other infrastructure subsectors may include education, government services, transport and health as areas of preference. The broadening of the mandate is anticipated to better position CQE to participate in what is expected to be increased demand for social infrastructure assets in the future. It is anticipated that a broader asset base with stronger covenants will also increase CQE's appeal to a wider range of investors. The key characteristics that have contributed to CQE's success in the childcare subsector will remain as management's focus for all new assets.

Activities of the government sponsorship that are mandatory for social cohesion and provide tangible economic benefits, typically through employment generational support, form part of the criteria. Additional criteria that CQE will pursue include social infrastructure assets with strong lease covenants, leases with limited capital expenditure requirements, net effective rents and higher land value as a second value driver to support income and capital growth. Further, specialized premises with low substitution risk and high tenant retention rates as well as assets that buy locational specialization are of material value to their occupants as is the case with childcare and further security and lower volatility.

The broadening of the mandate is expected to provide CQE investors with greater security of income and growth and can be provided by 1 subsector alone. The purchase of the Brisbane Bus Terminal to be discussed in June '19 is a good example of the asset income quality that CQE will pursue. A strengthened and more diversified real estate portfolio with greater prospects for income and capital growth is expected to achieve wider investor acceptance, both locally and offshore. This should also provide the benefits of scale to CQE as well as allowing it to participate in what is expected to be a significantly deeper social infrastructure sector in years to come.

Turning to Slide 8. CQE's primary focus will remain childcare, and that can be enhanced with assets and other social infrastructure subsectors. Previously, CQE was unable to access these opportunities and is now in a position to leverage the Charter Hall transactional platform. Areas of focus will be on real estate as opposed to operational assets that provide the characteristics previously noted. Childcare remains our priority, followed by educational assets, government services and facilities, transport and health, in that order of preference. The overriding condition applies that alternate subsector assets must be of better quality than those prevailing in the childcare marketplace. It is our expectation that as the population grows -- as the population continues to grow and with increased community demand and expectations as to the range and standard of government and mandatory services that Australia may experience a shortfall in the provision of assets and services in CQE's 4 key subsectors of interest. We expect that in a fashion that is similar to childcare that government commitments expand at a faster rate than its capital base. They may move to seek greater private sector involvement in the provision of accommodation that's traditionally been the case. This is certainly the case for public authorities that actively sought private sector involvement in their expansion or refurbishment plans. Industry forecast suggests that the social infrastructure gap, being the difference between existing and required social infrastructure in Australia, ranges between $300 billion and $700 million over the next decade. Given Australia's expected population growth of the further 11 million people in the next 30 years, that is the equivalent of adding a city the size of Canberra every year.

Turning to Slide 9. CQE's acquisition of the Brisbane City Council Bus Network Terminal at Eagle Farm in June '19 is consistent with the broadened mandate but also CQE's existing investment criteria. The investment drivers for the acquisition were consistent with CQE methodology, a triple net lease, a WALE of 19.2 years to a government body for a specialized but low site coverage asset. It supports the provision of a mandatory government service on land area of 6 hectares and in a high-value location. These are very similar drivers and attributes to childcare investment but on a larger, more economic as well as secured scale. The slide's photos highlight the location attributes of the site as well as the strategic location relevant to the city's bus network. We expect limited, if any, substitutionality in replacing what is an essential component of the bus network, which supports over 8 million bus trips per year or 24% of Brisbane Bus activity. Able to house and service up to 200 buses, the terminal is 1 of 3 constructed in the last 7 years to meet increasing demand driven by population growth, a greater reliance on public transport that promotes economic activity and supports employment. These are similar outcomes to the community but through a different means to that of childcare, but essentially the same long-term value drivers, only on a larger and more efficient scale.

It's the caliber of -- it is this caliber of investment that CQE will pursue as part of its broadening mandate into the future, which we expect will enhance CQE's profile through greater sustainability of the income and resilience through economic cycles.

I'll now pass on to Travis to discuss the financial results for CQE.

--------------------------------------------------------------------------------

Travis Scott Butcher, Charter Hall Education Trust - General Manager of Finance - Diversified [3]

--------------------------------------------------------------------------------

Thanks, Nick, and good morning to everyone.

On Page 11, we have a summary of the results for the year ending 30 June 2019. Key points to note, operating earnings for the year were $44.2 million, up 5.5% on the prior year. Earnings per unit for the year was $0.165, with distributions paid per year at $0.16, representing 6% growth on FY '18 and a payout ratio of 97%. Key drivers of the slight EPU for the year were the impact of divestments in the second half of FY '18, the equity raising included during the year and lower income from development sites during the year. Statutory profit for the year was $68.7 million, which is down by 33.4%, largely due to a $20.1 million reduction in property reiteration increments compared to the prior year and negative movements on the fund hedges of $10.9 million.

As a result of the capital raising, CQE continues to have a clean and strong balance sheet, NTA has increased by 6.5% to $2.96 per unit and the fund has a gearing level of 23.1% down from 29.1% at 30 June 2018.

Moving to Page 12. Key points to note are acquisitions, predominantly a full year contribution from the unused portfolio of 9 properties acquired in March and April 2018, contributed $3.1 million of additional lease income and the completion of developments in FY '18 and FY '19, including 6 completed developments in FY '19 provided an additional $2.6 million. Across the existing portfolio, there's a 2.3% or $1.3 million increase in lease income as a result of annual lease reviews, comprising a mixture of CPI, fixed increases and a small number of market reviews. This was partially offset by the impact of disposals, predominantly lower quality and higher unit properties in FY '18, reducing lease income by $2.5 million and a reduction in site rental income of $0.9 million. Site rent from development sites reduced from $2.6 million to $1.7 million due to the newer development transactions not including site rental during the construction period.

Moving to Page 13 and the balance sheet. And key highlights during the year were the successful completion of $120 million institutional placement and a $19.3 million unit purchase plan in March and April 2019, respectively, providing CQE capacity to participate in future opportunities. Asset growth of 15.3% to $1.2 million as at 30 June 2019. This was driven by acquisition and development activity in relation to our childcare portfolio, which added $85 million and property evaluation movements of $36.6 million. In addition, the acquisition of the 50% interest in the Brisbane Bus Terminal completed in June 2019 added an additional $25.8 million in assets. CQE's gearing is 23.1% and after including the debt provided at the asset level for the Brisbane Bus Terminal, the look-through gearing is 24.7%.

Moving on to Page 14 in CQE's capital management. Key highlights during the year were the increase in debt facilities by $50 million to $397 million. In August 2018, a debt refinancing occurred which included the reintroduction of AustralianSuper to CQE with $100 million 7-year institutional loan. We also extended the maturities of both the ANZ and HSBC maturities. And at 30 June 2019, the fund has a weighted average debt maturity at 3.9 years, with no maturity until September 2021.

CQE now has diversified debt funding sources and also longer maturities consistent with the predictable income and long WALE portfolio of 9.9 years. CQE has undrawn facilities of $123.5 million, which fully fund the capital required under the existing development pipeline of $87.3 million over the next 2 years. At the time of the capital raising, CQE increased and extended its hedging positions with an average hedging of 67% now in place through to December 2025 at a hedge rate of 1.75%.

I'll now pass back to Nick to cover up on the operational performance of CQE.

--------------------------------------------------------------------------------

Nicholas James Anagnostou, Charter Hall Education Trust - Head of Social Infrastructure Funds & Executive Director of Charter Hall Social Infrastructure Ltd [4]

--------------------------------------------------------------------------------

Thank you. Turning to Slide 16. During the year, CQE maintained its WALE of 9.9 years through lease option renewals and new transactions. Year-on-year rental growth was 2.3%, highlighting the increasing impact of CQE's focus on fixed rent reviews to provide better rental growth as well as maintaining operator sustainability. The limiting CPI-only base reviews has now been reduced to less than 60% of the portfolio, down from approximately 80% in 2014. Market rent reviews highlighted to the -- highlighted the under-rented nature of the childcare portfolio. Based on existing operating metrics, the portfolio remains below the industry benchmark of rental revenue of 12% to 14% on a good average management basis with CQE averaging 11.1% on a passing revenue basis. The focus has been to introduce good quality covenants in the portfolio thereby reducing our reliance on any one tenant and increasing the percentage of fixed rate reviews as opposed to CPI-based leases. Our focus includes manufacturing opportunities through partnerships that bring access to sites with solid demand and demographic profiles that have potential for long-term value growth. The income profile highlights the efficient nature of the Brisbane City Council Bus Network acquisition, which now represents 4.4% of overall income from 1 transaction.

Turning to Slide 17. CQE undertook 353 valuations during the year that saw an average 10 basis points reduction in passing yield of 6.2%. Our observations during the year with the introduction of the new CCS as well as fees and oversupply that the investor market took a short hiatus as they waited to see the impact of change. This has, in part, led to a reduction of the volume and quantum of sales for the year, although sales remained at double the volume of 3 years ago. Metropolitan sales averaged 6.1 and nonmetropolitan sales averaged 6.7 with the yield spread remaining largely unchanged for the year. Quality of stock was lower than for previous years.

The yield spread by state reflects the economic prospects of each with New South Wales now providing the lowest yield down to South Australia at 6.6. The strongest yield compression in recent times has been in Queensland, with yields now approaching similar levels to Victoria. However, it is expected that a greater number of CQE's properties in Queensland are under-rented rather than Victoria. In part, the volume of the market transactions relative to CQE size approaching $1.2 billion is another driver for the broadened strategy to provide CQE investors with growth opportunities at a greater rate than the childcare market has historically provided. It should also be recognized that the majority of assets offered for sale in the open market do not meet CQE's investment criteria.

Moving to Slide 18. The development pipeline continues to be a good source of quality assets that are accretive to CQE's earnings as well as providing superior long-term growth. During the year, 6 developments were completed at an average yield on cost of 7.1%. We have remained disciplined with respect to location and demand for the pipeline. 15 centers are under construction, and CQE's moved to balance the development portfolio with a greater number of third-party developers providing CQE with assets paid for upon completion. This derisks the pipeline further with CQE shifting completion of licensing risk to the developer. We expect another 12 to 14 sites could be delivered this financial year, and these are expected to provide further earnings uplift in FY '21 and beyond. Further derisking of the development pipeline was achieved through the March 2019 capital raising with remaining pipeline expenditure now fully funded.

Moving to Slide 20. Contrary to some expectations prior to its introduction, the new Child Care Subsidy scheme has increased operational demand for childcare centers introduction in July 2018. Average affordability is up 8%. Participation rents have increased as well as the average number of hours spent in childcare having risen from 20.8 -- 28.7 hours per week to 31 hours per week, an increase of 8%. Center supply levels for the year was 3.6%, a reduction in the previous year of 4.1%, and we expect a further reduction in supply during FY '20. Margins continue to be consistent with -- operating margin continue to be consistent and reflect higher margins for better quality services that meet the needs of local catchments.

Turning to Page 21. Increased demand for childcare in previous years were driven by population growth, although the lower growth over the past year at 1.6%. This has been supplemented by an increase in the workforce participation rate now at an all-time high of 66%. The female workforce participation rose up to 61%, and the male participation rate is down to 71%. ABS expectations are that by 2023, the female workforce participation rate will increase by a further 8%, can be -- further embedding childcare as a labor supply mechanism and an integral part of Australia's economy.

Important statistics relevant to childcare is the growth in year-on-year number of children utilizing childcare is up 4.2% through the third quarter of 2018, with Victoria seeing the highest rate of change at plus 6.9% and Western Australia at 5.2.%. I guess it matches most of CQE's development activity locations. Overall, Australia's year-on-year growth in children utilizing childcare was just over 4%.

Turning to Slide 22. Charter Hall estimates that 105 centers left the industry supply in FY '19, in a similar fashion the previous year. The majority of those centers were less than 50 places and in weaker demographics. In addition, 175 family day care centers closed during the year, reflecting low levels of profitability for that format and parents' preference for the long day care format. With many centers being removed from supply, match to increases in utilization as well as the number of hours spent in care increasing and the added benefit of increased affordability, we expect market sentiment to continue to strengthen as it has for over the last 6 months as the evidence on an equilibrium level of supply becomes more apparent.

Turning to Slide 24. The outlook for CQE remains sound with key indicators for childcare including affordability, female labor force participation and utilization rates all strengthening during the year. We expect that these with other factors could lead to increased investor activity and demand for childcare assets after subdued activity in FY '19.

CQE's broadened mandate is expected to deliver increased sustainability and resilience to its income base. An ability to leverage the Charter Hall transactional platform is expected to be a positive for CQE investors over and above that which could be delivered through childcare alone. Irrespective, childcare will remain CQE's primary focus.

With respect to earnings guidance for FY '20, subject to continued tenant performance, CQE expects earnings growth of 3% to 4% for FY '20 over FY '19, which equates to $0.17 to $0.172 per unit earnings, and distribution guidance of $0.167 per unit representing 4.4% growth over FY '19.

That concludes the formal component of our presentation. We look forward to your questions. Thank you.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question comes from the line of Krzysztof Kaczmarek.

--------------------------------------------------------------------------------

Krzysztof Kaczmarek, JP Morgan Chase & Co, Research Division - Analyst [2]

--------------------------------------------------------------------------------

Could you please just talk through what's incorporated in that 3% to 4% earnings guidance, please?

--------------------------------------------------------------------------------

Travis Scott Butcher, Charter Hall Education Trust - General Manager of Finance - Diversified [3]

--------------------------------------------------------------------------------

So the key components are -- we've obviously got organic lease income growth, we've got the completion of our development pipeline, we've also made some assumptions around future acquisitions and future disposals.

--------------------------------------------------------------------------------

Krzysztof Kaczmarek, JP Morgan Chase & Co, Research Division - Analyst [4]

--------------------------------------------------------------------------------

Right. Sorry? What is the quantum around the acquisitions and disposals?

--------------------------------------------------------------------------------

Travis Scott Butcher, Charter Hall Education Trust - General Manager of Finance - Diversified [5]

--------------------------------------------------------------------------------

The level of those? We forecast basically to -- we've got some number of acquisitions in the pipeline at the moment. So we forecast $40 million of new acquisitions and disposals of $25 million, the numbers we've used for that guidance.

--------------------------------------------------------------------------------

Krzysztof Kaczmarek, JP Morgan Chase & Co, Research Division - Analyst [6]

--------------------------------------------------------------------------------

Okay. And what sort of yields on those? Are you able to say?

--------------------------------------------------------------------------------

Travis Scott Butcher, Charter Hall Education Trust - General Manager of Finance - Diversified [7]

--------------------------------------------------------------------------------

In the acquisition side, approximately 6.5%, and disposals around 7%.

--------------------------------------------------------------------------------

Krzysztof Kaczmarek, JP Morgan Chase & Co, Research Division - Analyst [8]

--------------------------------------------------------------------------------

All right. Okay. And how should we be thinking about growth in the sort of broader social infrastructure space going forward? I mean have you got some acquisitions incorporated in your sort of thinking already? Or is it sort of wait and see as to what comes up in the future?

--------------------------------------------------------------------------------

Nicholas James Anagnostou, Charter Hall Education Trust - Head of Social Infrastructure Funds & Executive Director of Charter Hall Social Infrastructure Ltd [9]

--------------------------------------------------------------------------------

Look, I think we've taken a reasonably conservative approach, Krzysztof, to the social infrastructure opportunity or pipeline. We expect that's probably going to be more opportunistic than CQE's existing investment activity. A bit like the Brisbane Bus depot, which we recognized. It would have been nice for the depot to have come up after our announcement of our increased mandate, but unfortunately that was out of our control. So we haven't forecast. I think our forecast is reasonably sensible from the viewpoint of making sure that we've got opportunities that we can touch and feel and things that could be in due diligence.

--------------------------------------------------------------------------------

Krzysztof Kaczmarek, JP Morgan Chase & Co, Research Division - Analyst [10]

--------------------------------------------------------------------------------

Okay. And I note that you've mentioned you want to stick with childcare being sort of the main focus of CQE. But do you have any sort of idea as to what percentage of the portfolio targeting to be outside of childcare?

--------------------------------------------------------------------------------

Nicholas James Anagnostou, Charter Hall Education Trust - Head of Social Infrastructure Funds & Executive Director of Charter Hall Social Infrastructure Ltd [11]

--------------------------------------------------------------------------------

Look, I think -- going back to the sort of purpose of what we're looking to do here, it's really around strengthening CQE's sort of sustainability and income resilience moving forward. So it will really be dependent upon the quality of opportunities that come towards CQE. I don't expect it's going to override childcare. That's -- that will clearly remain our focus. It's really about adding that sustainability and resilience particularly through economic cycles.

Seeing that the bus depot is a good example in terms of size at sort of $50 million for CQE, we will be looking to add opportunities that have that sort of scale. But it really will always come back to the investment characteristics of any particular opportunity. And if they don't improve our portfolio metrics, if they don't improve our -- the quality of the real estate and the quality of the covenants that we're putting into -- that we could put into the trust, then that wouldn't be things that I don't think -- I think wouldn't be appealing.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

(Operator Instructions) (technical difficulty) comes from the line of Gareth James from Morningstar.

--------------------------------------------------------------------------------

Gareth James, Morningstar Inc., Research Division - Senior Equity Analyst [13]

--------------------------------------------------------------------------------

Apologies, I wasn't able to listen to all of the call, but I just had a question on the operating margins. I think you made a comment that operating margins -- it sounds like you're saying that they're reasonably stable. I was kind of expecting a bit of expansion as a result of the CCS. Just came to get a bit more color around what's happening in that regard.

--------------------------------------------------------------------------------

Nicholas James Anagnostou, Charter Hall Education Trust - Head of Social Infrastructure Funds & Executive Director of Charter Hall Social Infrastructure Ltd [14]

--------------------------------------------------------------------------------

Look, the anecdotal evidence is that we probably saw a reduction in margins June 2018, and that was really going back to the impact of the previous subsidy scheme. And the fact that it was running at full clearance earlier in the year than had previously been the case. We're now expecting to see in our data -- our tenant data are starting to come through at the moment. So it's unfortunate we cannot give you a little bit more color. We're expecting to see those margins, particularly off the back of increased utilization and also the number of hours the children are spending, those margins and occupancies are probably moving back to where they were probably 18 months ago to 2 years. In saying that, we -- the feedback that we get from a lot of our operators is that it can be patchy and there certainly will be areas where margins are probably lower than they've historically been over the last 3 to 5 years. But generally speaking, still double digit, still providing healthy levels of return given the operational risks in the business.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

Your next question comes from the line of Richard Jones from JPMorgan.

--------------------------------------------------------------------------------

Richard Barry Jones, JP Morgan Chase & Co, Research Division - VP [16]

--------------------------------------------------------------------------------

Just you guys are quite specific about the opportunities in childcare that you're looking at today. Can you provide any clarity on how actively you're looking at non-childcare opportunities currently in front of you?

--------------------------------------------------------------------------------

Nicholas James Anagnostou, Charter Hall Education Trust - Head of Social Infrastructure Funds & Executive Director of Charter Hall Social Infrastructure Ltd [17]

--------------------------------------------------------------------------------

Yes. Look, I think -- Richard, you need to be reasonably confident, I mean, in sort of moving into a marketplace that there are opportunities out there. And certainly, the Charter Hall transactional platform gives us great market coverage that we could never have expected inside of one we were focused in. So I'm not suggesting to you right at this point that there -- we're about to sort of be pushing the transaction button on anything in particular in social infrastructure. We've been very disciplined. We're going back towards the characteristics that we are looking for that match. And then the bus there -- I don't know, I keep coming back to this, but it was such a strong opportunity for us because it gave us all of the attributes that we look for in childcare, essentially on a significantly larger scale and provided us with more efficient structure that -- they are the sorts of things that we'll be seeking as opposed to smaller, less appealing, lower-quality covenant-type opportunities that might be in the marketplace.

--------------------------------------------------------------------------------

Richard Barry Jones, JP Morgan Chase & Co, Research Division - VP [18]

--------------------------------------------------------------------------------

And any assets within the wider Charter Hall funds under management today that suit your mandate that may be an opportunity in time?

--------------------------------------------------------------------------------

Nicholas James Anagnostou, Charter Hall Education Trust - Head of Social Infrastructure Funds & Executive Director of Charter Hall Social Infrastructure Ltd [19]

--------------------------------------------------------------------------------

Well, look, I think there's probably always that opportunity. I'd expect that most of the things that -- in fact, all of the things that the other Charter Hall funds have purchased they're very happy with and probably wouldn't be looking to divest. But certainly, that's one of the great benefits of being inside such a large platform is there's a potential subject to unitholder interest to make sure that you get some sort of access to those opportunities.

--------------------------------------------------------------------------------

Operator [20]

--------------------------------------------------------------------------------

(Operator Instructions) (technical difficulty) comes from the line of Cameron Bell from Canaccord.

--------------------------------------------------------------------------------

Cameron Bell, Canaccord Genuity Corp., Research Division - Senior Industrials Analyst [21]

--------------------------------------------------------------------------------

Travis, just a quick question on your cash flow statement. Could you just take me through the $23 million of finance cost you spoke?

--------------------------------------------------------------------------------

Travis Scott Butcher, Charter Hall Education Trust - General Manager of Finance - Diversified [22]

--------------------------------------------------------------------------------

So the big components there are -- as part of the capital raising, we restructured the hedges. So $8.4 million of that's relating to that and the refinancing of the debt facilities, the $2.8 million establishment fees is part of that. If you add those together, it's about $10 million there, close.

--------------------------------------------------------------------------------

Operator [23]

--------------------------------------------------------------------------------

Your next question comes from the line of Sky Walker from Alder & Partners.

--------------------------------------------------------------------------------

Sky Walker, Alder & Partners Private Wealth Management - Investment Analyst [24]

--------------------------------------------------------------------------------

Just the development's always a feature of the trust, at least in part. I'm just wondering how you're thinking about this in terms of the new strategy because the social infrastructure assets tend to be larger and lumpier and sort of less standardized than childcare assets.

--------------------------------------------------------------------------------

Nicholas James Anagnostou, Charter Hall Education Trust - Head of Social Infrastructure Funds & Executive Director of Charter Hall Social Infrastructure Ltd [25]

--------------------------------------------------------------------------------

Is the question in relation to the childcare developments or non-childcare development?

--------------------------------------------------------------------------------

Sky Walker, Alder & Partners Private Wealth Management - Investment Analyst [26]

--------------------------------------------------------------------------------

Non-childcare development, sorry.

--------------------------------------------------------------------------------

Nicholas James Anagnostou, Charter Hall Education Trust - Head of Social Infrastructure Funds & Executive Director of Charter Hall Social Infrastructure Ltd [27]

--------------------------------------------------------------------------------

Look, I think -- you've always got with developments an increased level of risk. I suspect that, at the same time, if managed properly, that can provide very solid levels of return. I think what we've learned from childcare is that, to a certain extent, relative to the size of your portfolio, development generally tends to be something that you do need to be involved with. I'm not suggesting to you that development will be the next opportunity that we put forward to the market in social infrastructure. But I think at some point, whether we enter that development phase early or on completion as we are with childcare at the moment, remains to be seen. But it's certainly something that's in consideration.

--------------------------------------------------------------------------------

Sky Walker, Alder & Partners Private Wealth Management - Investment Analyst [28]

--------------------------------------------------------------------------------

Okay. And how do you think of -- think about development in terms of the balance sheet? And where would you be comfortable taking the balance sheet to?

--------------------------------------------------------------------------------

Nicholas James Anagnostou, Charter Hall Education Trust - Head of Social Infrastructure Funds & Executive Director of Charter Hall Social Infrastructure Ltd [29]

--------------------------------------------------------------------------------

Well, look, I think it comes back to the level of the yield on cost that we're getting from any one particular one at the same time. We are a fund that is designed to provide sustainable and very predictable income growth. So we never want to be in a position where we are overshadowing the objectives of the fund via a development opportunity.

--------------------------------------------------------------------------------

Operator [30]

--------------------------------------------------------------------------------

(Operator Instructions) There are no further questions at this point. I would like to hand the conference back to Mr. Nick Anagnostou for any closing remarks. Thank you.

--------------------------------------------------------------------------------

Nicholas James Anagnostou, Charter Hall Education Trust - Head of Social Infrastructure Funds & Executive Director of Charter Hall Social Infrastructure Ltd [31]

--------------------------------------------------------------------------------

Thank you, everybody, for your attendance and participation today. If there are further questions through our Investor Relations platform, we're happy to answer them. And I expect that we will see many of you over the next couple of weeks in one-on-one meetings. Thank you very much.