Charter Hall Retail REIT (ASX:CQR) reported a strong first half of FY26, pointing to record-high occupancy, continued rent and valuation growth, and a post-balance-date refinancing that management said improves covenant headroom and lowers debt margins.
Portfolio performance and operating metrics
Retail CEO Ben Ellis said the REIT’s convenience retail portfolio “performed strongly across all metrics” over the last six months, highlighting an all-time high portfolio occupancy of 99.1%. The trust delivered same property NPI growth of 3% for the half, supported by what management described as strong tenant trading conditions, with portfolio moving annual turnover (MAT) growth of 2.9%.
The trust’s portfolio weighted average lease expiry (WALE) was 7.1 years. Management emphasized tenant covenant strength and diversification, citing major tenants including BP, Woolworths, Coles, QVC, Bunnings, Kmart, Endeavour Group, Ampol, and ALDI.
Financial results: earnings, distributions, and NTA
Head of Retail Finance Joanne Donovan reported operating earnings of AUD 75.6 million, or AUD 0.13 per unit for the half, representing growth of 3.4%. Distribution per unit rose to AUD 0.128, delivering 4.1% DPU growth. Donovan said finance costs increased during the period, “largely driven by growth and acquisitions.”
Net tangible assets (NTA) per unit increased 5.8% to AUD 4.91, which management said was driven predominantly by rent growth over the half. Donovan added that tenant arrears were less than 0.3% at 31 December 2025.
Valuations, cap rates, and supply backdrop
CQR said its valuation uplift continued, with management reiterating that new retail supply in Australia is running about 50% lower than levels seen a decade ago. Ellis argued that population growth and limited supply are supporting tenant and investor demand for convenience-based retail assets.
Donovan said 100% of the portfolio was externally revalued at 31 December 2025. Key valuation outcomes included:
- Shopping centre net valuation growth of AUD 87 million (up 3.8%), driven by rental income growth and 12 bps cap rate compression.
- Net lease portfolio net valuation growth of AUD 66 million (up 3%), driven by inflation-linked rental growth and 10 bps cap rate compression.
- Portfolio cap rate of 5.55% as of 31 December 2025.
In Q&A, Ellis addressed investor questions about cap rates for convenience net lease assets, saying the market is “dominated by privates” and describing the assets as rare with long lease terms, high underlying land value, and strong income growth.
Portfolio curation and transaction activity
Management said the first half was an active period of portfolio reshaping, with the net lease convenience portfolio increasing from 39% to 49% of total portfolio value. Ellis said CQR has now “materially achieved” its stated 50/50 balance between convenience shopping centres and net lease retail.
Key first-half transactions discussed on the call included:
- Divestment of four assets and a 49.9% interest in RP1 and RP2 to the Charter Hall Convenience Retail Fund (CCRF) for AUD 679 million (previously announced in August 2025).
- CQR increased its investment in CCRF to AUD 435 million, representing a 17.2% ownership interest; Donovan later clarified that CQR invested an additional AUD 50 million pre-31 December.
- Acquisition of four Bunnings assets for AUD 151 million (Toowoomba, Cairns, Airlie Beach, and Goulburn).
- Acquisition of two metropolitan net lease assets: AP Eagers (Kirrawee, Sydney) for AUD 56 million and Tesla (Red Hill, Brisbane) for AUD 59 million, acquired off-market at an average yield of 6% with 9.1 years WALE and annual rent reviews being the greater of CPI or 3.5%.
- Divestment of AUD 154 million of assets, including the sale of 85% of the Gordon Centre in Sydney to CCRF and a full sale of Mareeba Square in regional Queensland.
Post-half, CQR said it exchanged contracts to acquire three convenience shopping centres in Queensland and New South Wales (Airlie Beach, Gympie, and Armidale) for AUD 251 million at an average yield of 6.7%, with occupancy above 99%. The REIT also plans to increase its investment in the Charter Hall-Ampol Partnership Number One from 5% to 50%, which management said is fully occupied with a 14.1-year WALE and benefits from CapEx-free triple net leases and inflation-linked rental growth.
To fund these acquisitions, CQR agreed terms to dispose of three shopping centres (Arana Hills, Kings Langley, and Butler) to CCRF for AUD 208 million at an average yield of 5.3%, and exchanged contracts to sell Lansell Square in Bendigo for AUD 110 million. Management said these transactions are expected to settle in the second half of FY26.
Balance sheet, refinancing, and hedging
Donovan said balance sheet gearing was 29.2% at 31 December 2025. Post-balance date, CQR agreed terms to refinance its entire AUD 1.6 billion debt platform via a new facility across eight lenders. The refinancing extends weighted average debt maturity to four years and reduces the weighted average debt margin by 40 basis points, from 165 bps to 125 bps.
In Q&A, management said the margin reduction is expected to take effect in the third quarter, “before March.” Donovan added that while market rates increased versus when guidance was first provided, the margin savings and increased hedging support confidence in guidance, with Ellis stating the margin reduction “fully offsets” the increase in floating rates.
CQR also updated its hedging profile, with average hedging of 60% in FY26 and 68% in FY27. Donovan explained that the REIT “blend and extended” some FY26 hedges into FY27 and entered into AUD 800 million of new hedges, adding FY28 hedging of 51%.
Management also addressed covenant changes on the call, noting the interest cover ratio (ICR) covenant reduced from 2.0x to 1.5x, while the actual ICR at 31 December was 2.6x.
Supermarkets, specialty leasing, and ESG update
Ellis said supermarket anchors remain central to the shopping centre portfolio, with a balanced mix between Coles and Woolworths and ongoing partnership with ALDI. Supermarkets delivered MAT growth of 2.6%, up from 2.5% at June 2025. Supermarkets in turnover within 10% of their sales threshold remained at 84%.
For specialty tenants, management said sales productivity remained strong and occupancy costs were stable at 11.5%. The REIT completed 186 specialty leasing transactions (70 new leases and 116 renewals) and reiterated the 4.1% positive leasing spreads and 88% retention rate.
On ESG, the company said it achieved net-zero carbon emissions for the financial year, “predominantly through” on-site solar generation and off-site renewable energy via a power purchase agreement with Engie. CQR reported 17.4 MW of rooftop solar installed and 14.7 MWh of battery capacity across eight sites, a 17% increase in waste diversion since FY22, and a ranking of second in Australia and New Zealand for listed retail entities in the 2025 GRESB report.
Outlook: CQR reaffirmed upgraded FY26 operating earnings guidance of not less than AUD 0.264 per unit, representing a 4% uplift over FY25. Distributions per unit are expected to be AUD 0.255, a 3.3% uplift on FY25, which management said implies an approximate 6.6% distribution yield based on the most recent closing price.
About Charter Hall Retail REIT (ASX:CQR)
Charter Hall Retail REIT is the leading owner of property for convenience retailers. Charter Hall Retail REIT is managed by Charter Hall Group (ASX:CHC). Charter Hall is one of Australia’s leading fully integrated property investment and funds management groups. We use our expertise to access, deploy, manage and invest equity to create value and generate superior returns for our investor customers. We’ve curated a diverse portfolio of high-quality properties across our core sectors – Office, Industrial & Logistics, Retail and Social Infrastructure.
