The acquisition of the BP Portfolio will increase the weighted average lease expiry, and increase the resilience of the Long WALE REIT.
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Charter Hall Long WALE REIT (ASX: CLW) announced on Friday that it has successfully completed its fully underwritten institutional placement of approximately $60 million. This was announced earlier this month as a means of funding its purchase of petrol stations in New Zealand leased to BP plc (LSE: BP).
The placement received strong demand from new and existing institutional investors. In addition, 12.3 million new securities will be issued under the placement at an issue price of $4.87 per security, a 1.6% discount on Friday’s closing price. Moreover, the real estate investment trust (REIT) is also undertaking an additional non-underwritten security purchase plan (SPP) to raise up to $10 million.
Charter Hall Group (ASX: CHC) recently announced a new fund to acquire 49% of a portfolio of convenience properties in New Zealand. Specifically, these include 70 triple net leased (NNN), long-weighted average lease expiry (WALE) properties leased to BP. The fund will be owned 50% by its Long WALE REIT and 50% by Charter Hall Retail REIT (ASX: CQR). The portfolio will have a 20-year WALE at acquisition, with lease terms ranging from 18 to 22 years.
Features of a long WALE REIT
As defined above, WALE refers to the average lease terms of the assets in a portfolio. Long WALE assets lean towards industrial properties such as distribution hubs, warehouses, and of course petrol stations. Many commercial or retail leases have a duration of 5 years or less, disqualifying them as long WALE assets.
Triple net leases are often a feature of long WALE REITs. These are where the tenant is responsible for all the expenses of the property. Specifically, real estate taxes, building insurance, and maintenance. In addition, these payments are over and above the fees for rent and utilities.
Long WALE REIT properties often house larger, blue chip tenants or government departments. As such, negotiation on rents and fees can be more challenging. However, there are less costs associated with more frequently searching for new tenants.
Long WALE REIT performance
Despite the wide ranging impacts of the lock down, the Charter Hall Long WALE REIT improved performance in a number of areas. This underlines the resilience of the portfolio and the skills of the management team. In particular, it increased earnings per share by 5.3% and increased the WALE from 12.5 to 14 years. Moreover, it increased the valuation of its portfolio by $96 million, at a time when many other REITs saw a downgrade in asset values.
Foolish takeaway
Right now, the Charter Hall Long WALE REIT is selling at a price-to-earnings (P/E) ratio of 17.39 with a trailing 12 month dividend yield of 5.71%. It has proven its resilience during the coronavirus pandemic and is continuing to grow via acquisition. I think it is a good opportunity for anybody looking to build up a solid dividend portfolio with assets that are likely to retain their value.
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Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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