Why the Charter Hall Long WALE REIT share price isn't rocking the boat

It's steady as she goes for this ASX real estate investment trust.

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The Charter Hall Long WALE REIT (ASX: CLW) share price climbed just one cent higher today despite the company releasing a sound set of financial results for FY22.

Shares in the real estate investment trust (REIT) closed at $4.39 apiece on Tuesday, 0.69% higher.

The Charter Hall Long WALE REIT invests in Australasian real estate assets predominantly leased to corporate and government tenants on long-term leases. 

Let's take a look at the company's latest results.

What did the company report? 

Here is a quick snapshot of the key financial highlights: 

  • Operating earnings lifted by 4.5% on FY21, to $207 million
  • Statutory profit of $911 million
  • The portfolio of real estate assets grew from $5.6 billion to $7.1 billion
  • A net $670 million appreciation in the value of assets (minus capital expenditure and amortised incentives)
  • Balance sheet gearing at 29.9%, in line with the target range of 25% to 35%

Operating cash flows improved from $162 million to $187 million.

I believe operating cash flow is one of the key metrics in assessing the health or performance of the Charter Hall REIT. 

The statutory profit figure seems impressive but investors should be mindful it includes unrealised gains in the value of the underlying properties. 

The primary sources of revenue include rental income and proceeds from the sale of property assets. So, the performance of the Charter Hall REIT comes down to the quality of its property assets. 

As outlined in the latest financial report, the Charter Hall REIT is leased by the following top five major tenants. 

Portfolio expansion 

The Charter Hall REIT ship added $1.5 billion of assets. Half of this was from its 50% stake in the ALE Property Group. 

This 50% interest was valued at $814 million, invested in partnership with Hostplus. The ALE Property Group portfolio comprises 78 pub properties, including 74 bottle shops in metropolitan locations and along the New South Wales east coast.

The pubs and bottle shops are leased to Endeavour Group. 

The other major acquisition was an industrial facility constructed in 2018. It's located in Sydney's industrial area of Wetherill Park. 

This facility is leased to Cleanaway and ResourceCo, which are distribution centres. 

Management likes what they see

Charter Hall REIT fund manager Avi Anger said: 

FY22 has seen CLW continue to grow in a measured way, enhancing portfolio quality and improving asset and tenant diversification. During the year we successfully completed the acquisition of the ALE Property Group in partnership with Hostplus. We also completed three high-quality Industrial & Logistics acquisitions, two of which were secured off-market.

In such uncertain and challenging macroeconomic conditions, building a resilient and diversified investment portfolio is important. 

Further, Anger advised, "Looking forward, 49% of CLW's leases are inflation-linked, providing a significant opportunity for strong rental growth in the year ahead." This provides an inflation hedge

Future outlook

The company is guiding operating earnings per share (EPS) of 28 cents and a distribution per security of 28 cents. 

On the basis of today's closing share price, this equates to a 6.9% distribution yield

Charter Hall Long WALE REIT share price snapshot

The Charter Hall Long WALE REIT share price has fallen 14% across the last 12 months. In the same period, the S&P/ASX 200 Index (ASX: XJO) fell by 7%. 

The company has a current market capitalisation of $3.17 billion. 

Landlords faced a torrid time during the pandemic but the outlook is much better now. People are travelling again and, importantly for this business, going out to pubs. 

Such a shift in behaviour bodes well for the pubs and liquor stores the company acquired this financial year. 

Industrial property assets continue to prosper on the back of the rise in e-commerce. However, commercial offices could face structural headwinds due to the rise in demand for remote work arrangements. 

Overall, I think the Charter Hall REIT provides a diversified portfolio of real estate estates that could surprise over the long term. 

Motley Fool contributor Raymond Jang has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Telstra Corporation Limited. 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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