Charter Hall Social Infrastructure REIT
Charter Hall has broadened the investment mandate of the Charter Hall Education Trust to include social infrastructure and changed its name to the Charter Hall Social Infrastructure REIT. The ASX code for the REIT will continue to be CQE.
The REIT’s primary focus will remain the childcare sector but it will now also invest in social infrastructure sub-sectors, such as education, government services, transport and health.
At CQE’s financial results announcement in August, Charter Hall said the broadening of the investment mandate was designed to strengthen and complement CQE’s income and investment profile in order to provide greater opportunity for earnings and capital growth.
Quality of the asset base
Charter Hall’s head of social infrastructure and executive director, Nick Anagnostou, told Industry Moves that it was also about quality of the asset base. He said that many tenants in social infrastructure assets, such as governments and transport companies, have an inherent interest in maintaining property premises, which is good for their owners.
"Basically it's about quality," he said of the widening of the investment mandate.
There is also income resilience in the typical tenants of social infrastructure - such as governments, which also tend to seek longer tenancies. He expects the change will result in an increase in size of the $1.2 billion trust, which will also enable it to take part in large acquisitions.
"We wanted to be in a position where we could consider those acquisitions," Anagnostou said.
Charter Hall also hopes the new strategy - which has been well received by investors since the announcement in August - will better position the fund to participate in an expected increase in demand for social infrastructure assets, thereby increasing its appeal to a wider range of investors.
CQE bought its first social infrastructure asset in June with the acquisition of a 50 per cent interest in the Brisbane City Council Bus Network Terminal for $51.25 million. That investment also comes with a 19.2 year remaining triple-net lease to Brisbane City Council and fixed annual rent increases of 2.5%, highlighting the stability that social infrastructure tenants can provide.
“The addition of social infrastructure assets that match and ultimately enhance the existing characteristics of CQE is a logical extension of a sound and predictable formula that captures the key thematics of population growth and support mechanisms for Australia’s labour supply and economy,” Charter Hall’s head of social infrastructure and executive director, Nick Anagnostou, said in August.
The long game
The fund’s overall investment strategy will continue to be based on on minimal capex leakage, net effective rents, long-term leases, high levels of tenant retention and high land values.
Charter Hall changed the name of Folkestone Education Trust to the Charter Hall Education Trust in November 2018, when it become the largest unitholder in the trust following its acquisition of Folkestone Investment Management.
Part of the attraction for Charter Hall in acquiring Folkestone in 2018, according to managing director and group chief executive officer David Harrison, was its leading position in social infrastructure and the early learning sector.