This half-year’s earning season has a more positive feel compared to the last, even for battered and downtrodden retail property sector.
Charter Hall Retail REIT’s [ASX:CQR] half-year results paint a surprisingly upbeat outlook for retail property, even during a time when we weren’t allowed to visit the shops.
Although you wouldn’t call today’s share price action a resurgence, the CQR share price is up 1.86% or 6.5 cents at time of writing to trade at $3.57 per share.
Source: Tradingview
It might be too early to expect a recovery from CQR, with its share price no better than it was in June of last year.
What do earnings show?
As we might have predicted from CQR’s share price action through the first half of FY2021, operating conditions did improve along with earnings.
CQR recorded operating earnings of $75.2 million up 7.1% on 1H FY20 of $70.2 million.
Statutory profit recovered nicely to $82.8 million, up $16.1 million or 24.1%.
Net cash flow from operating activities improved too, up 9.4% to $75.7 million.
More than half of CQR’s tenants are classified as high quality major convenience retail tenants.
These include Woolworths Group Ltd [ASX:WOW], Coles Group Ltd [ASX:COL], BP, Wesfarmers Ltd [ASX:WES] and Aldi.
Companies that were able to operate significant proportions of their businesses, even during the height of the lockdown periods.
As such, rental income was able to rebound given the relative strength of a majority of their tenants.
CQR provided $5.8 million or 4% of 1H FY21 rent as tenant support for COVID-19 affected retailers.
That level of support diminished over the period, with $133 million or 94% of rent successfully collected.
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CEO Greg Chubb also noted an uptick in leasing activities and occupancy:
‘The gradual normalisation of conditions also saw leasing activity recover strongly, with a record 224 specialty leases completed at an average +2.5% leasing spread. Pleasingly, we also saw occupancy lift to 97.8%, up from 97.3% at June 2020.’
What’s next for commercial retail spaces?
Supermarkets are essential outlets, so a REIT like CQR could be considered a defensive play.
Not that there is anything wrong with being defensive, particularly in such an uncertain market.
But with residential housing prices on the boil and expected to rise as much as 16% over the next two years, there are higher potential property plays out there.
That’s not to say CQR’s assets won’t appreciate either.
Their property portfolio value increased 8.6% in 1H FY2021 compared to the previous corresponding period.
And there could be plenty more growth to come in the supermarket space once fear of COVID-19 is finally quelled with the arrival of the vaccine.
But property is typically a long-term investment and looking only 12 months ahead won’t give you the full picture. Instead, cast you eye ahead five years. Australian real estate expert Catherine Cashmore reveals why she thinks we could see the biggest property boom of our lifetimes — over the next five years. Click here to learn more.
Regards,
Lachlann Tierney
For The Daily Reckoning Australia
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