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Why Charter Hall Long WALE REIT shares could be a buy

Charter Hall Long WALE REIT (ASX: CLW) shares had a strong finish to the week, jumping 5.1% higher to $4.97 per share. That was on the back of a strong full-year result headlined by a 5.2% jump in operating earnings.

Here’s why I think the coronavirus pandemic has created a solid case for Charter Hall Long WALE REIT shares.

What did the ASX REIT report on Friday?

I was pleasantly surprised by the full-year numbers for the year ended 30 June 2020 (FY20).

Operating earnings climbed 5.2% on the prior corresponding period (pcp) to $121.9 million. Statutory profit totalled $122.4 million with distributions to shareholders up 5.2% to 28.3 cents per share.

Based on Friday’s closing price of $4.97, that represents a tidy dividend yield of 5.7% per annum.

Net tangible asset per security climbed 9.3% to $4.47 while balance sheet gearing was a lowly 24.2%.

The Aussie REIT boasts a $3.6 billion property portfolio, up from $2.1 billion last year, following $1.4 billion of property acquisitions.

But the real reason I like the Charter Hall Long WALE REIT is, unsurprisingly, for its long weighted-average lease or “WALE” terms.

Why Charter Hall Long WALE REIT shares could be a buy

Understandably, investors are worried about Aussie real estate investment trusts (REITs) right now. After all, there aren’t many real estate sectors that are looking rock solid.

Retail, commercial, office and residential real estate all have their challenges. COVID-19 has been the trigger, but not necessarily the cause, of much of this instability.

For starters, Charter Hall Long WALE REIT shares provide the upside of high distributions. That’s good news given the uncertainty around rental income and the role of commercial landlords right now.

But I think the average lease term here is the key. The ASX REIT reported a portfolio WALE of 14.0 years, up from 12.5 years at 30 June 2019.

That means that rather than seeing a big impact from short-term movements, Charter Hall Long WALE REIT shares could actually outperform.

That’s because the ASX REIT already has long-term agreements in place with tenants locked in. On top of that, the COVID-19 impact has been relatively minor so far.

The REIT reported that small and medium enterprise (SME) tenants, those more at risk of negative impact, comprise just 0.4% of net rent. 

Charter Hall Long WALE REIT also provided just 0.2% of rent relief to tenants in FY20, with FY20 guidance reaffirmed and delivered.

Foolish takeaway

I think a long average-weighted lease term and blue-chip tenants is good for the ASX REIT.

If you’re looking for dividend stability amid the short-term volatility, Charter Hall Long WALE REIT shares could be a good option.

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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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