Charter Hall property fund sold down by investors as rate rises bite

The specialist long-leased property trust is suffering as high interest rates lift finance costs.

Charter Hall Long WALE REIT fund manager Avi Anger.

A $5bn property trust run by property funds house Charter Hall was sold down by investors after its outlook was hit by the ­impact of higher interest rates and it indicated it would cut its distributions next year.

The move by the Charter Hall Long WALE REIT to pay less in the next financial year is a further sign that the listed real estate investment trust sector is being hit by higher interest rates.

The fund is also under pressure as its underlying gearing is now above 40 per cent, but it says it is far from covenants and its model will hold up in the face of higher interest rates.

Fund manager Avi Anger said the trust had been affected by an unprecedented increase in rates, “which everyone is feeling at the moment”.

Charter Hall Long WALE REIT units lost 23c, or 5.7 per cent, to close at $3.80 on Tuesday as analysts reviewed their forecasts.

The units were trading as high as $4.72 in February.

The Charter Hall-run fund gave fiscal 2024 operating earnings per security guidance of 26c and distributions per security guidance at the same level.

In the last financial year, both operating earnings and distributions were at 28c per security.

The group has made few asset sales but is now exploring ways of disposing properties.

“I think asset sales are certainly an area we are focused on,” Mr Anger said.

“We are looking at some ­potential sales. I think our portfolio is very high quality.”

Mr Anger said the fund was still seeing strong rental growth across its portfolio as about half its leases were uncapped and linked to CPI and the other half of the leases were fixed increases.

He said the company had now rebased its interest rates for the coming year and was in a good position from a cost-of-debt perspective.

“We just need rates to stabilise, and then we can resume our growth profile from here,” he said. “If we see a moderation in rates, I think we’re in a good position to be able to continue to do that.”

Ord Minnett analyst Leanne Truong said that, while the result was broadly in line with expectations, the guidance given was a bit of a miss. She noted that look-through gearing had crept up to 40.1 per cent mainly due to valuation losses. The fund reported valuation losses of about 10 per cent across its pub holdings and Ms Truong said gaming regulations had an impact on the hospitality valuations.