Good morning, everyone, and welcome to the Charter Hall Long WALE REIT Results presentation for the 2025 financial year. Presenting with me today is Erin Kent, Head of Long WALE REIT Finance. I would like to formally introduce Erin for those that have not met Erin yet. This is Erin's first results for Long WALE REIT, having joined Charter Hall in July of this year, and we welcome Erin to the team. I'd like to commence today's presentation with an acknowledgement of country. Charter Hall acknowledges the traditional custodians of the lands on which we work and gather. We pay our respects to elders past and present and recognize their continued care and contribution to country. The format for today's presentation is that I will start with an overview of CLW and key highlights for the year.
You will then hear from Erin, who will provide an overview of the financial performance of the REIT. I will then return to provide an operational update and portfolio overview and provide guidance for FY 2026. We will then offer the opportunity for questions. Turning to slide four. Today, CLW has a best-in-class AUD 5.5 billion diversified real estate portfolio secured by long leases to blue-chip tenants with a weighted average lease term, or WALE, of 9.3 years. Our portfolio has an occupancy level of 99.9% and continues to be diversified by tenant, industry, geography, and property type, which contributes to the stability of our cash flow. Our portfolio has delivered strong like-for-like net property income growth of 3% over the prior year. As at 30 June 2025, CLW had 54% of its income derived from triple net lease properties.
This is an important feature of our portfolio, given that under a triple net lease structure, the tenant is responsible for all outgoings, maintenance, and capital expenditure. The security of income of the REIT is also reinforced by the high-quality income stream generated from blue-chip tenants, with 99% of the tenants of the REIT consisting of government, ASX-listed, multinational, or national businesses. Our largest tenants are Endeavour Group, Federal and State governments, Telstra , and bp . We delivered operating earnings of AUD 0.25 per security for the year in line with guidance, and we are pleased to announce that we are forecasting earnings and distributions for FY 2026 of AUD 0.255 per security, reflecting 2% growth over FY 2025. Turning now to slide five and key highlights for the year. I'm pleased to report that we delivered operating earnings of AUD 0.25 per security for the year in line with guidance.
Our NTA at 30 June 2025 is AUD 4.59 per security, which is consistent with the NTA reported at our half-year results in February, with minor impacts from swap movements. The portfolio delivered 3% like-for-like net property income growth, with 54% of the income of the REIT being CPI-linked and the balance fixed reviews. Over the full year, like-for-like portfolio valuation movement was relatively flat, demonstrating that valuations have generally troughed. The portfolio is sitting at a very high occupancy level of 99.9%. CLW has a long WALE of 9.3 years, providing security and continuity of income to our investors. We completed AUD 715 million of new interest rate hedging over the past year, with 89% of debt hedged at 30 June 2025 and hedging in place to date for FY 2026, reflecting an average forecast hedging of 72% for the year ahead. We remain focused on prudent capital management.
Balance sheet gearing is at 31.4%, within the target 25% - 35% range. In December 2024, Moody’s reaffirmed CLW’s Baa1 investment-grade credit rating. Turning now to slide six. This slide provides a review of CLW’s portfolio sector cap rates over the past five years. On a like-for-like basis across CLW’s diversified real estate portfolio, portfolio value is on average 18% higher in June 2025 compared to June 2020, driven by contracted and market rental growth underpinned by CLW’s best-in-class diversified tenant base. Notwithstanding recent cap rate movement over the past two and a half years, when viewed over a longer time horizon, CLW’s portfolio cap rate is similar to what it was five years ago. For all the concerns around recent cap rate movements, on a like-for-like basis, CLW’s portfolio value is higher than it was five years ago.
I would now like to hand over to Erin, who will provide an overview of the financial performance of the REIT.
Thank you, Avi, and good morning to everyone on the call. Commencing on slide eight, which provides a summary of CLW's earnings for the FY 2025 full-year result, the REIT achieved annual like-for-like net property income growth of 3%, which has been offset by the reduced income from asset divestments, which occurred throughout the current and prior reporting periods. Operating expenses reduced by 15.3%, given the lower gross asset value of the portfolio in the current period. Finance costs have also reduced by 16.7% due to the lower debt drawn in FY 2025 as a result of the divestment activity. Both operating earnings per security and distribution per security for the current reporting period were AUD 0.25, in line with our guidance previously provided to the market. Turning to slide nine and CLW's balance sheet position. During the current reporting period, the REIT completed AUD 340 million of net property divestments.
The net proceeds were utilized to complete the AUD 50 million on-market security buyback in the first half of FY 2025, with a balance of proceeds used to repay debt. 100% of CLW's portfolio was independently valued throughout FY 2025, resulting in a total portfolio valuation decline of AUD 9 million, with a net positive valuation uplift achieved in the second half, partially offsetting first-half devaluations. The REIT's NTA per security is AUD 4.59 as at 30 June 2025, reflecting a reduction of AUD 0.07 since 30 June 2024, as a result of the mark-to-market of interest rate derivatives caused primarily by the reduction in the market interest rate curve, reducing CLW's net derivative asset position. Turning to slide ten, which provides a summary of the REIT's capital management initiatives. Post the successful completion of the asset divestment program, CLW's balance sheet remains strong.
Balance sheet gearing sits at 31.4% and look-through gearing at 38.8% as at 30 June 2025, with material headroom to covenants. We successfully refinanced AUD 310 million of balance sheet debt, extending the term by 2.8 years. The REIT has total facilities calculated on a look-through basis of AUD 2.7 billion, with a weighted average debt maturity of 3.6 years and a smooth expiry profile from FY 2027 through to FY 2032. The debt platform retains a diverse portfolio of lenders, with 35% of look-through debt sourced from capital markets. Moody's has also reaffirmed its Baa1 investment-grade credit rating for CLW. As at 30 June 2025, CLW's weighted average cost of debt was 4%, based upon look-through debt drawn of AUD 2.2 billion and look-through hedging of AUD 2 billion at an average fixed rate of 2.4%.
CLW has 89% of its look-through debt hedged as at 30 June 2025, with a weighted average hedge maturity of 1.5 years. Across FY 2025, the REIT progressively established AUD 715 million of new hedges across its balance sheet and joint venture investments. This has resulted in an increase in the hedge percentage for the FY 2026 guidance year to 72%, which is materially higher than the 48% reported at the FY 2025 half-year results. As valuations have now stabilized, the resetting of CLW's balance sheet via active portfolio curation has ensured that the REIT is well positioned to execute on new or creative strategic asset acquisitions. I will now hand back to Avi to provide an operational update and portfolio overview.
Thank you, Erin. In the following slides, I would like to provide an operational update, overview of our portfolio, and outline some key attributes of the portfolio. Turning to slide 12. During the year, we settled the remaining properties from our FY24 divestment program, with AUD 299 million of sales settled during FY 2025. We also continued our portfolio curation with a further AUD 57 million of divestments, being our office building at 85 George Street in Brisbane, three bp service centers, and the Endeavour leased Brunswick Hotel in Brisbane. Whilst relatively small in size, it is important to highlight that we have been active in curating our Long WALE portfolio. In our bp portfolio, which is co-owned alongside bp, bp identified three properties that were considered non-core and recommended these for sale. In our Long WALE portfolio, we sold the Brunswick Hotel after receiving an unsolicited offer.
This property was sold at a 75% premium to our purchase price and a 10% premium to our December book value, demonstrating the embedded value in our Long WALE portfolios. We have utilized the capital provided from these sales to deploy into portfolio-enhancing and earnings accretive opportunities. Turning to slide 13, we are pleased to announce that we have acquired six portfolio-enhancing opportunities that will be earnings accretive for FY 2026 and beyond. Importantly, these acquisitions increase CLW's exposure to Commonwealth Government-leased social infrastructure properties. In the social infrastructure sector, we have completed three transactions. The Department of Defence facility in Canberra is an important property within Canberra's Defence Precinct. The Department of Defence has occupied the property since it was constructed, with the building being of critical importance as part of Canberra's Defence Precinct. The asset has a two-year lease term with significant land for expansion and redevelopment optionality.
It is being acquired at a passing yield of 14.9%. The Border Force building in Bulla, Melbourne is leased to the Commonwealth Government, with 11.4 years remaining on the lease and features 4% annual rent reviews. It is being acquired at an 8.1% passing yield. CLW is also increasing its investment in the Geoscience Australia facility in Canberra, upweighting its investment from 25% to 33.3%. The property is leased to the Commonwealth government, with a 6.9-year lease term remaining at settlement and annual 3% rent reviews. The passing yield of the property is 8.4%. Turning to slide 14. At CLW's half-year results in February, we announced that we had completed two strategic acquisitions, being the accommodation adjoining the portfolio's existing Narrabeen Sands Hotel and the BWS bottle shop in Crows Nest, adjacent to the portfolio's existing Crows Nest Hotel.
Both properties were acquired on sale and lease back with Endeavour Group, with an average WALE of 9.5 years. Finally, CLW has acquired the remaining 49.9% interest in the Westpac Kogarah building to take CLW's ownership interest in this property to 100%. The property is leased to Westpac, with 9.1 years remaining on the current lease term. The property was acquired at a 7.3% passing yield. Slide 15 is our portfolio overview. At June, the REIT consisted of a portfolio of 510 properties valued at approximately AUD 5.5 billion. Portfolio valuations were predominantly flat over the year, with a movement in the portfolio valuation driven by divestments. The portfolio average cap rate is 5.4%, reflecting no change over the past 12 months. The portfolio is virtually fully occupied, with an occupancy of 99.9% and a long-dated WALE of 9.3 years at June.
As at 30 June, CLW had 54% of its income derived from triple net lease properties. The properties in the portfolio feature a blend of annual lease review structures, both fixed and CPI-linked. Of the 54% CPI-linked, 9% are CPI plus half or 1%, whilst 11% relate to the ALE portfolio, where we have annual CPI reviews plus a significant market reversion event occurring in 2028. The mix of annual reviews results in a weighted average rent review for FY 2025 of 3.1%. Turning now to slide 16 and an outline of our tenant customers and the tenant diversification of the REIT. Our portfolio of Long WALE properties is leased to high-quality tenants, including Endeavour Group, Government, Telstra, bp, Metcash, and Coles. The REIT's largest tenant exposures are to Government tenants and best-in-class pub and bottle shop operator, the AUD 7.2 billion Endeavour Group.
In the data center and telecommunications sector, we have a partnership with another best-in-class operator, the AUD 56 billion Telstra Corporation, which includes our portfolio of 37 exchange properties on long triple net leases. Our bp Australia and New Zealand portfolio of 287 properties on long triple net leases provides us with exposure to the resilient fuel and convenience retail sector. We also have a high proportion of tenants operating in the non-discretionary grocery and food sectors such as Woolworths, Coles, Metcash, and Arnott's. Turning to slide 17 and the industry diversification of our tenant customers. Within our overall portfolio, approximately 99% of tenants are ASX-listed, government, multinational, or national corporations, with the vast majority of these tenants operating in non-discretionary defensive industries. The REIT's major sector exposures are to convenience retail, government, data centers and telecommunications, grocery, and food manufacturing. Turning to slide 18.
As can be seen on the chart on this slide, the REIT's portfolio has a long-dated lease expiry profile and reflects a low-risk position relative to our peers in the sector. Our portfolio WALE is a long-dated 9.3 years. We have minimal lease expiries in the near term, and we are in discussions with a number of tenants with expiries in FY 2026 and beyond regarding lease renewals and extensions. We continue to work to push out our expiry profile as far as possible to the right of this chart, both through portfolio curation and negotiating lease extensions with our valued tenant customers. On slide 19, we would like to outline that a significant portion of CLW's portfolio is comprised of properties that are of critical importance to the business operations of our tenant customers, with the tenants likely to be in occupation well beyond the current lease term.
54% of CLW's portfolio consists of triple net leases, and if these tenants were to remain in occupation for all option periods under their leases, this would increase the WALE of the portfolio to 30.7 years today. This is particularly relevant in the context of our Endeavour Leased ALE portfolio. This represents approximately 11% of CLW's portfolio by income, with a WALE of approximately 3 years. This is dragging down our average portfolio WALE. These properties are very important to Endeavour's business, with this tenant likely to remain in occupation of these properties at expiry of the current lease term. Turning now to slide 20 and environmental, social, and corporate governance. We remain focused on implementing sustainability initiatives across our portfolio and consider ESG as a driver of long-term value for investor and tenant customers. As a business, we've taken accelerated climate action.
CLW has maintained net zero Scope 1 and Scope 2 emissions for assets that fall under the operational control of Charter Hall. Additionally, CLW has been focused on clean energy generation, with 8.9 MW of solar installed across its portfolio, an increase of 2.4 MW over the past 12 months. CLW's predominantly modern office portfolio features high environmental credentials, including 5.4 star NABERS Energy and 4.7 star NABERS Water ratings. CLW remains committed to aligning with best practice frameworks to support transparency and disclosure. The fund achieved a score of 78 in the 2024 GRESB assessment, which ranked CLW first amongst its peers, demonstrating our commitment to transparency and continual improvement in ESG performance of the fund. These preceding slides demonstrate the resilience and strength of our portfolio.
Our portfolio WALE, quality of tenants, and proportion of triple net leases provides better downside protection and more resilient income streams for our investors. Turning now to slide 22. CLW's strategy is to provide investors with stable and secure income and targeting both income and capital growth through an exposure to a diversified portfolio leased to corporate and government tenants. Portfolio occupancy is 99.9%, with a long WALE underpinned by leases to secure blue-chip tenants with annual rent increases. Active curation and asset recycling continue to enhance portfolio quality and composition, with recently completed transaction activity included in FY 2026 guidance. CLW's portfolio and capital structure are positioned for growth. Based on information currently available and barring any unforeseen events, CLW is forecast to deliver FY 2026 operating earnings per security of AUD 0.255 and distribution per security of AUD 0.255.
This represents a distribution yield of 6.1% based on yesterday's closing price of CLW securities. Finally, I would like to acknowledge and thank the teams of people across the Charter Hall platform that contribute to the performance of CLW and the results delivered today. The Charter Hall Group provides the REIT with access to a high-caliber team of experts across all areas of the REIT's management and provides CLW with access to a best-in-class management platform. That concludes the presentation, and I would now like to invite questions.
Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star one one on your telephone, then wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Cody Shield with UBS. Your line is open.
Good morning, Avi and Erin. Just looking at those acquisitions settling post-balance date and where look-through gearing is, to what extent are you getting ahead of the balance sheet capacity that you think revaluations will provide over the next 6 to 12 months?
Thanks, Cody. Look, we currently have our gearing at about balance sheet gearing within the target range, and the look-through is about the 38% level. Post these transactions, post-balance date, we've always said we're comfortable with look-through gearing around 40% and balance sheet gearing within the 25% - 35% range. That's sort of where post-transactions where the gearing will be. You have to bear in mind as well that we're at a point in the valuation cycle where we believe valuations have troughed, and we think, coming into a lower interest rate environment, we are expecting some cap rate compression and valuation growth over the coming period. I think that'll also help to reduce gearing going forward.
Would you look to keep look-through gearing at around that 40% mark over the next, you know, let's say two to three years, or would you naturally see that come down as revaluations come through?
We haven't given a look-through gearing target. We said we're comfortable around that level, and it'll just be a function of where the opportunities are for us to acquire things accretively and grow earnings. That's the sort of what we're trying to achieve with CLW going forward.
Okay. Just the Department of Defence acquisition, do you have a feel for where market rents are for that asset?
Yeah, look, that property is an interesting opportunity where we think there's an opportunity there for that to become a Long WALE asset. It's relatively short WALE at the moment, but we're in negotiations at the moment to see if we can extend that lease, including, you know, rents on that asset. Also, the land we've acquired has very good development potential as well. That's all subject to negotiation at the moment. We'll provide an update to the market once we've got more clarity on that.
Would you expect a similar level of rents?
Yes.
Okay. Maybe just the last one, just on 2026 guidance, can you give a feel for where base rates are assumed?
For 2026 guidance?
Hi, Cody. Yeah, sure. We've got obviously the 72% average hedging over that period with the balance being floating, and we've just assumed in line with market, which is averaging about 3.2% across FY 2026 as at today.
Okay, perfect. That's all from me. Thanks, guys.
Thanks, Cody.
Our next question comes from the line of Lou Pirenc with Jarden. Your line is open.
Yes, thank you. Thanks, Avi, Erin. Maybe quickly following up on that last question on cost of debt. Any change in margins? I mean, clearly you've made some good progress adding hedging for 2026. That looks like a pretty attractive rate. Have margins and line fees changed much within that?
No, they're the same. Our average margin sits at just under 1.5%. I think 1.5% is a reasonable assumption going forward.
Great, thank you. Just on the acquisitions, a few of them are a kind of 49.9% or 50% stakes. Is that jointly with the group, or is it just that that was the stake that was fulfilled?
Yeah, that's right. The Department of Defence was acquired alongside the Charter Hall Group, and the other stake was Kogarah , where we've just increased our stake to 100%. It was previously 50.1%, and we've just gone to 100% on that. They're the probably two main ones. Geoscience Australia, we've just upweighted. Yeah.
Thank you. Can you maybe talk a little bit more broadly about, you know, acquisition opportunities? I mean, clearly it's good progress in the last month. I mean, are markets, you know, markedly opening up for these types of opportunities?
Yeah, look, they are. As you know, Lou, we've always been very active in the sale and leaseback space, particularly in the context of CLW , and we're expecting to do more transactions in that space going forward. We've been a little bit limited in our capacity to do a lot of deals in that space. I would say that's sort of the sale and leaseback space, but we'd love to do more in that space. When we're able to do more, we will. In the general transaction market, there really hasn't been a lot of high-quality Long WALE opportunities that have traded. We've had a look at some of them, but they've been few and far between. We think as the market picks up, there'll be more of that. A lot of the stuff, particularly, for example, industrial, has been secondary short WALE stock that sold.
In the Long WALE space, things like Bunnings and service stations that have sold and pubs have been selling at prices that are yields that are well below what our book value yields are. I think that sort of bodes well for the prospects of those assets in our portfolio.
Yeah, no, that makes sense. Maybe finally, you've clearly made good, or you've always had a good track record of selling assets to fund growth opportunities. If you look at your current portfolio, is there much of a, I don't know, desire to kind of look at your, you know, I don't know if you would call it the bottom, you know, x%? Do you have disposable kind of targets?
Yeah, look, we sold, you know, north of AUD 800 million of assets over the last couple of years, and a lot of that were assets in, as you say, you know, that bottom quartile of the portfolio. We've done a good refresh, and now we've acquired some assets that have added to the quality of the portfolio. We're always looking at recycling opportunities. We're always reviewing our portfolio and looking at those bottom-ranked assets and how we can trade to better, you know, better opportunities, and we'll continue to do so. We do, yeah, absolutely. We think that there are a number of assets in our portfolio that could get sold in the future, but I think we've finished, you know, our divestment program for now. Any opportunities, anything we sell, it'll be really to be able to recycle into other opportunities.
We're not looking at sort of selling more just to sort of pay down debt or anything like that going forward. We think we've done enough of that.
Thanks, Avi.
Thanks, Lou.
Will you stand by for our next question? Our next question comes from a line of David Pobucky with Macquarie Group. Your line is open.
Good morning, Avi, Erin, and team. Thanks for taking my questions. I just had a follow-up on the Department of Defence facility at Campbell Park. I know you provided a little bit of color there, but I just wanted to get some further color on whether you expect the Department of Defence to renew that lease and what are the other options if potentially they don't. In terms of the development potential as well, what sort of development potential exists at the asset, please?
Yeah, thanks, David. The Department, we've all, in CLW, as you know, we're a Long WALE REIT, and we've always sort of said that acquisitions will be either Long WALE or things that have the potential to be Long WALE opportunities. I think we've got reasonable confidence that that can become a Long WALE opportunity. The Department of Defence has been in that property since it was constructed. It's an important part of the Canberra Defence Precinct and their portfolio down there. It's on a very large site that has expansion and redevelopment optionality. That is all being reviewed at the moment and something that we're progressing. I can't provide any further details at this stage, but as I mentioned, we're a Long WALE REIT and that's what we're trying to achieve in the context of this asset as well.
Thank you. Will you stand by for our next question? Our next question comes from the line of Saleem Hussain with JP Morgan. Your line is open.
Morning, Avi and Erin. Thanks for your time. Just on the hedge book, it's good to see the FY 2026 hedging lifting to 72%, but just noticed that the hedge rate is 2.6%, very little change. I'm just wondering how you've been able to achieve this pricing given I don't think swap rates hit that sort of mid-2% range even during, I guess, the market tumultuation earlier this year. It doesn't seem like you've paid capital for hedges either. It would be just good to reconcile that.
Yeah, thanks, Saleem. As you've mentioned, we've done a significant amount of hedging, increasing that hedge percentage by about 25% across FY 2026 and 2027. We've basically taken advantage of that market volatility recently and dips in the curve. These hedges were of various durations and only increased marginally our fixed rate across those periods.
Noted. Just on the post-balance debt acquisitions, I guess, you know, concentrated in office or social infrastructure, office-adjacent assets. Is your read here that they represent the best value across your investable universe at this point in time?
Yeah, that's right. I mean, I wouldn't say that office-adjacent, like the Border Force facilities, but a very, very small component of office and Geoscience Australia has a large warehouse component at that property as well as research facility on the site. In any event, yes, they represented some great opportunities to take advantage of the market for where those properties are trading at at the moment and were able to secure those on very attractive pricing that was accretive. We got the benefit in Charter Hall Long WALE REIT of being a diversified REIT and we could take advantage of where we see the best value and those assets definitely represented very good value and attractive yields that help us deliver earnings growth into this year.
Great. Just a quick one, just on the LEP market rent review, could you just remind us of the exact timing of that?
November 2028.
Thanks.
Thank you. Will you stand by for our next question? Our next question comes from the line of Suraj Nephani with Citi. Your line is open.
Thank you. Thank you. Couple of quick ones. Just on the AUD 700 million or the AUD 715 million of new hedges, Erin, I know you mentioned the 2.4% rate, but would you say you're largely done on the near-term hedging and you know what was the overall rate? If I just do the math on margin and 2.4%, that comes to sub 4%. I'm just trying to understand the overall rate.
Yeah, sure. The 2.4% fixed rate is an add-up rate at 30 June 2025. Across 2026, that increases slightly to 2.6% at that 72% hedging. You've got to remember the balance, the 28% floating is at an average rate across the market of 3.2%. Blending that together and adding our margin and fees, you get above 4% cost of debt for 2026.
Okay. All right. Thank you. The other one was just around the Coles facility development that was announced with the previous result. Is there any update on that, Avi, or anything you can talk to?
That was the expansion at Coles Perth Airport for the freezer. That's all progressing as planned, on budget, and on time. You can see there's a photo of that on the front cover of the presentation. You can see that the walls are up, the roof's on, and it's progressing very well.
Perfect. Perfect. Just one final question. I know there's a bit of questions on the Department of Defence asset. It is pretty high yielding. I guess the question is, where do you expect yields to land? Is there any other opportunities that you see in this higher yielding kind of space without necessarily impacting the portfolio quality of the overall business?
Yeah, that was a unique opportunity, I think, where we were able to acquire the asset at a high yield just because of the relatively short lease term remaining. We're working on that at the moment, and we'll provide an update on that when we're able to. Those opportunities don't come around very often, so we'll stay on the lookout for ones like that and other opportunities when they arise. We see that as a pretty unique opportunity, really.
Can you talk to the cap rate of that acquisition, Avi, what the cap rate was?
I'll follow up with you on that, Suraj, if that's okay. I'll come back to you on that.
Okay, no worries. Thank you.
Thank you. As a reminder, ladies and gentlemen, that's star one one to ask the question. Please stand by for our next question. Our next question comes from the line of Winky Tan with Morningstar. Your line is open.
Hi, good morning, Avi and Erin. Thanks for taking my questions. Just wondering what your expectation is on CapEx for 2026 because you highlighted the Coles Distribution Centre in Perth in the half-year result. Just wondering if there are any more development opportunities coming up in FY 2026. Do you expect to spend more money on that Coles DC?
Yeah, we've got the Coles remaining at about AUD 20 million there, and we've got just the normal portfolio CapEx, which is usually about AUD 10 million a year. That's the main aspects of the CapEx going forward.
Got it. Where do you expect to see the strongest tenant demand across your portfolio, across office, industrial, retail, and social infrastructure?
We're quite fortunate in CLW that we have, in the main, very long leases with very little expiring. We are 99.9% occupied, so we've only got a little bit of space to lease. In terms of demand going forward, as leases roll off, it's strong across most of our assets. As I mentioned earlier, on the retail side, which is about half our portfolio, our pub portfolio, Bunnings, and service stations, they're very strategic properties for those tenants. We expect that they will be in those properties for quite some time, notwithstanding we have long leases on the vast majority of those. In industrial as well, most of our industrial portfolio is Long WALE modern facilities that are, again, important to those tenants, mostly food-related tenants like Coles, Woolworths, Arnott's, Metcash, their main distribution centers in key cities.
They're pretty important facilities for those tenants, and we expect those tenants to be in occupation for some time. Coles Perth Airport is a good example of that, where we're constructing the freezer at the moment, and then the lease term resets for a new 12 years. Even in office, most of our office is government-leased long leases. There's a little bit of vacancy or expiry coming up that we're dealing with at the moment and looking to extend tenants in a number of properties in that space. Overall, we're in a very good space, and we think that the market in office is improving. In the other, the retail and industrial and social infrastructure, tenant demand is strong.
Thanks for that. I'm just looking at your FY 2026 operating earnings reconciliation. I worked out that it's about AUD 100 million net transactions that you're expecting in FY 2026. Are there any particular sectors that you're expecting to get more exposure to?
No, look, just to be clear, in our guidance, we're not forecasting any further transaction activity over and above what we announced today. You can see in the pack we've announced transactions, some acquisitions. That is really all that's in the guidance at the moment for FY 2026.
Got it. Thanks, Avi.
Thank you. Please stand by for our next question. Our next question comes from the line of Simon Chan with Morgan Stanley. Your line is open.
Oh, good day, Avi. Good day, Erin. Hey, Avi, I just want to go through the acquisitions post-balance date in a little bit more detail. Can you confirm for me that they were all from Charter Hall stablemate except for Campbell Park?
No. The two hospitality assets were sale and leaseback from Endeavour.
Oh, yeah, they're in the first half. Yeah, they're in the first half.
Otherwise, yes. I mean, we've increased, you know, we've increased our investments in Kogarah and Geosciences , and we've done that by acquiring interests from other funds that own those. So, yes. And AFP, we acquired from our industrial fund. Yes. The Bulla facility.
Yes. How did those opportunities come about, like buying from your stablemate? Like, did you knock on DOF's door or did DOF come to you and say, "Hey, mate, we've got a liquidity event. You know, can you help us out?" Like, can you just walk us through like what happened behind the scenes?
It's different across different opportunities, but yes, it can happen both ways, Simon. Sometimes if a fund's thinking about selling, it makes sense to go to the other owner in the first instance and try and agree a deal. In other instances, we could proactively offer to increase our stakes as well. Both scenarios can happen. We have a process though internally where that does happen. It's transparent. It's at valuation. There are independent directors involved, separate deal teams. There's a detailed related party process that's followed in those instances.
Good to hear. Hey, Canberra, I thought you guys were thinking about putting that one on the market. Is that still the case? Sorry, Telstra. I'm talking about Telstra down in Canberra. What's the latest there?
No, the latest there is that we're in the process of extending the lease with Telstra for a short period of time, which is all factored into guidance at the moment. We're in the market for tenants, and we're putting proposals in at the moment. We're in a fortunate position. We've got a very well-located building, a good size that suits a number of requirements, and there are requirements at the moment, both government and private sector. We're in the process of participating in those processes at the moment. I'm hopeful we get a good leasing outcome heading into FY 2027, but we're covered for FY 2026, and now we've got a year to work on leasing that up.
Great. Just one more. I think someone else brought up the ALE portfolio in one of the earlier questions. I think back in late 2021, when you bought the portfolio, you mentioned that it was probably about 35% or 40% underrented. A lot has happened since then, right? I mean, what was seven years away is now three years away. Are you still thinking about 35% - 40% underrented? Do you foresee anything that could happen whereby the upside can't be realized?
We're not actually commenting on how underrented we think it is. We do think it's underrented at the time we acquired. I think we said it was circa 30% underrented. We think it's at least that today, but we're not putting any numbers out there because that'll be subject still to negotiation. That portfolio is a wonderful portfolio, great assets. We're very, very comfortable with it. I don't see anything getting in the way of that.
That's terrific. Thanks, Avi. Cheers.
Thank you. Please stand by for our next question. We have a follow-up question from the line of David Pobucky with Macquarie Group. Your line is open.
Thank you for the follow-up. I just had an issue with my phone earlier. Just one on balance sheet capacity, if I could, please, and appreciate your view on asset values, Avi. Profile on my balance sheet and gearing looks to be about 34% if you include the post-balance date acquisitions. That's at the upper end of your target range. Do you think you've got a bit more capacity for acquisitions without having to divest, or will acquisitions from here be predicated on further recycling? Thank you.
Yeah, I think that's right, David. We think that two things. Yes, I think we're going to be looking at recycling opportunities going forward. Also, we're hopeful that we're at the bottom of a valuation cycle where valuations should, you know, they were flat over the last 12 months. We're expecting going forward that valuations will start to grow from here. If cap rates, if there's no further expansion in cap rates, just rental growth alone that comes through our leases will help drive some valuation growth. There may well be some cap rate compression, particularly if we see some interest rate cuts in the coming months, which is expected. I expect naturally that that level will tick down as cap rates come down as well.
Thank you, Avi. Appreciate it.
Thank you. Ladies and gentlemen, I am showing no further questions in the queue. I would now like to turn the call back over to Avi for closing remarks.
Thanks, everyone, for joining the call today. I appreciate your interest in CLW and look forward to meeting with many of you over the coming days and weeks. Thank you.