The Charter Hall Long WALE REIT (ASX: CLW) share price is down 5% after the property ASX 200 (ASX: XJO) share announced its FY23 result.
It owns various properties across Australia, across different sectors like industrial, Bunnings Warehouses buildings, petrol stations and so on. They all have long rental leases.
FY23 highlights
- Operating profit of $202 million, or $0.28 per share
- Total annual distribution of $0.28 per share
- Net tangible assets (NTA) of $5.63 per share
- Statutory loss reported of $189 million
- 5.1% weighted average rental increase
- Balance sheet gearing (debt level) of 32.9%
The portfolio had an occupancy rate of 99.9% and a weighted average lease expiry (WALE) of 11.2 years, giving the real estate investment trust (REIT) a lot of rental income security for the long term.
All of its properties were revalued as of 30 June 2023, resulting in a net valuation decrease of $363 million compared to the prior values on the balance sheet. That’s one of the biggest pain points for the Charter Hall Long WALE REIT share price, though there could be more declines to come for the balance sheet valuations.
The portfolio capitalisation rate, which effectively describes the net rental income yield compared to the property value increased by 36 basis points from 4.41% to 4.77% at 30 June 2023. When valuations go down, it increases the yield.
However, during the year it was able to sell $114 million of divestments, including two short WALE industrial assets at the reported book values.
During the year it also spent $91 million on a social infrastructure investment, being the Geosciences Australia headquarters.
FY24 guidance
The business said that on based on information currently available, including the current interest rate and inflation expectations, and barring any unforeseen events, it has guided that the earnings per security (EPS) and distribution per security of 26 cents.
At the current Charter Hall Long WALE REIT share price, it offers a distribution yield of 6.8%.
Final thoughts on the Charter Hall Long WALE REIT share price
The market has been harsh to a number of ASX REITs since interest rates started rising. We may see commercial property values continue to fall, but that’s different to the share price – at the moment the share price to NTA discount is over 30%.
With inflation boosting the rental income, I don’t believe that the business deserves to trade on such a large discount to where it was before. For the yield alone, I think it’s a solid ASX dividend share choice and there could be a future valuation improvement when interest rates (worries) calm down.
