S&P/ASX 200 Index (ASX: XJO) shares are in the green today, up 0.12% to 7,317 points.
But one ASX 200 share moving in the opposite direction is Charter Hall Long WALE REIT (ASX: CLW).
Charter Hall Long WALE shares are down 5.6% to $3.81 at the time of writing.
Charter Hall Long WALE is a real estate investment trust (REIT) with a portfolio of properties including logistics warehouses, pubs, service stations, and agribusinesses with long leases in place.
WALE refers to the weighted average lease expiry (WALE). The benefits of long leases include long-term tenants and continuity of rental income with annual rental reviews.
Today, ASX 200 share is falling after the REIT disclosed its FY23 full-year results.
Let's take a look.
What's got this ASX 200 share falling today?
Charter Hall Long WALE REIT reported a decline in operating earnings and a statutory loss for FY23.
Here are the key points for FY23:
- Operating earnings $202.4 million or 28 cents per share (cps) vs $207.2 million or 30.5 cps in FY22
- Distributions of 28 cps vs 30.5 cps in FY22
- NTA of $5.63 per share, down from $6.17 per share in FY22
- Statutory loss of $189 million compared to a $912 million profit in FY22
- Diversified portfolio valued at $6.8 billion and comprising 549 properties
- Average rents rose by 5.1% across the portfolio in FY23
- As of 30 June, 99.9% of assets were occupied and the average WALE was 11.2 years
- Balance sheet gearing of 32.9%, within the target range of 25% to 35%.
Why will this ASX 200 lower its dividend in FY23 and FY24?
While net property income increased in FY23, operating costs and interest on debt rose by much more.
The portfolio capitalisation rate improved by 36 basis points from 4.41% as at 31 December 2022 to 4.77% as at 30 June 2023. The 'cap rate' is the rate of return based on expected income generated.
However, inflation pushed up operating costs and rising interest rates pushed up financing costs.
Rental increases of 3.1% applied to 49% of leases on fixed review terms, while rental increases of 7.1% on average applied to the 51% of leases that are inflation-indexed.
The portfolio average increase was 5.1%.
The portfolio's net valuation also declined by $363 million over prior book values in FY23.
Put all of this together, and it's why this ASX 200 share is going to pay a lower dividend in FY23.
The REIT also projects an even lower dividend for FY24.
By the way, REITs call their dividends 'distributions'.
The Charter Hall Long WALE REIT is forecasting distributions of 26 cents per share in FY24.
This compares to 28 cents paid in FY23 and 30.5 cents paid in FY22.
Based on the current price of this ASX 200 share, the FY23 dividend represents a 7.35% yield.
What else happened in FY23?
The Charter Hall Long WALE REIT divested $114 million worth of assets, including two industrial assets in Victoria leased to Woolworths Group Ltd (ASX: WOW) at Hoppers Crossing and Toll in Altona North.
It spent $91 million on a new social infrastructure asset in Canberra, which is currently the headquarters of Geosciences Australia, on a 7.4% initial yield and 9.6-year WALE at acquisition.
Charter Hall announced the Woolworths divestment and Geosciences acquisition on 12 October. This moved the ASX 200 share price up by 0.75% on the day.
The REIT also spent $18 million buying four pubs leased to Endeavour Group Ltd (ASX: EDV) on a blended 5% cap rate on 15-year CPI-linked triple net leases (NNN).
What did management say?
Charter Hall Long WALE REIT Fund Manager Avi Anger commented:
In FY23 the CLW portfolio delivered a strong net property income increase of 10.6% driven by like-forlike growth of 4.4%, with the balance driven by acquisition activity.
The portfolio enjoys strong rental growth as a result of the high proportion of CPI-linked leases, high levels of occupancy and quality of tenants.
What's next?
Charter Hall said high interest rates and inflation continue to present headwinds for all A-REITs.
Other key risks include adverse economic conditions and changes in the commercial property sector, including tenants needing less space.
ASX 200 share price history
Charter Hall Long WALE shares are down 13.5% in the year to date.
The ASX 200 share has lost 12.7% of its value over the past 12 months.
