Good afternoon, ladies and gentlemen. Given it's past 12:00 P.M., we can start. On behalf of the Board of Directors, it's my pleasure to welcome you to the 2025 Annual Security Holders Meeting of Charter Hall Long WALE REIT, better known as CLW. My name is Glenn Fraser, and I'm the Chair of the CLW Board of Directors. As the necessary quorum is present, I declare this meeting properly constituted and open. 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 the Elders, past and present, and recognize their continued care and contribution to Country. This afternoon, I'll provide a brief overview of CLW's strategy and some commentary and performance on FY 2025.
The CLW Fund Manager, Avi Anger, will then provide an update on the operational and financial performance for FY 2025. This year, there's no formal business of the meeting, but we still provide you with an update on the REIT, and we would welcome your questions. If I could introduce my fellow Board Directors, Ray Fazzolari, Non-Executive Director, and Ray is the Chair of our Audit, Risk and Compliance Committee, and Ceinwen Kirk-Lennox is a Non-Executive Director. I extend the apologies from both David Harrison, the Group Managing Director of Charter Hall Group, and Carmel Hourigan, who's an Executive Director of Charter Hall Group and CEO of Office and Wholesale Capital. Both David and Carmel, unfortunately, are in Perth at a major industry event where Carmel is the President of the Property Institute of Australia, so they couldn't be here today, but they do extend their apologies.
Also present today is management, and I welcome Avi Anger, Diversified CEO and Fund Manager of CLW, Daryl Chua, Deputy Fund Manager for the Long WALE REIT, Erin Kent, Head of Finance for Long WALE REIT, and Mark Bryant, our Company Secretary. Brian McMahon from our auditors, PricewaterhouseCoopers, is also here and able to answer questions on the accounts should you wish. Andrew Price from Ernst & Young is also in attendance in an observing capacity in relation to the auditor transition from FY 2026. As you know, CLW invests in commercial properties that are primarily leased to major corporate and government tenants on long-term leases. We are Australia's largest diversified Long WALE REIT, and we have a AUD 5.5 billion portfolio comprising 510 properties. 54% of our leases are triple net leases. We have a 99.9% occupancy rate and a WALE of 9.3 years.
FY 2025 marked a turning point in the Australian commercial property market. With a resilient diversified portfolio, with long leases, high-quality tenants, CLW is well placed to deliver in the future for our security holders. We remain focused on actively managing our portfolio and pursuing Long WALE opportunities to drive sustainable earnings and distribution growth. Operating earnings for the FY 2025 financial year were AUD 1.78625 per security, down 3.8% from FY 2024, and that was primarily due to higher interest costs and the impact of some asset sales that were finalized during the financial year. Distributions of AUD 0.25 per security were paid in line with our guidance and representing a 100% payout ratio. Strategic portfolio curation remains central to the CLW approach. In FY 2025, we completed AUD 350 million of asset sales and made AUD 11.5 million of strategic acquisitions in consolidating some sites associated with our convenience retail hospitality portfolio.
Post FY 2025, CLW acquired AUD 229 million of new investment in social infrastructure and office assets at attractive yields, supporting an earnings and distributions upgrade for FY 2026. These active management decisions have returned CLW to a growth trajectory, with FY 2026 forecast to deliver 2% growth in both EPS and DPS. The Board acknowledges the market's favourable response to our FY 2025 results and our FY 2026 guidance. Despite expectations of earnings pressure from rising interest costs, our proactive approach has restored CLW's growth momentum. From 30 June, 2024 to the close of the FY 2025 reporting season on 31 August, 2025, CLW delivered a total return to security holders of 48%, with the security price rebounding strongly towards our net tangible assets. The Board remains committed to supporting management in delivering sustainable long-term performance and looks forward to ongoing portfolio activity in FY 2026 and beyond to maximize returns for shareholders.
CLW remains committed to embedding sustainability across our portfolio, recognizing ESG as a key driver of long-term value for both investors and tenants. In FY 2025, CLW maintained net zero Scope 1 and Scope 2 emissions for assets under our operational control. This achievement reflects our continued investment in renewables and the execution of a nature-based offset strategy. Our on-site solar capacity now totals 8.9 megawatts, a 37% increase since FY 2024, 100% of this energy directly supplied to our customer tenants. CLW's portfolio continues to demonstrate strong environmental credentials. Our office assets achieved a NABERS energy rating of 5.4 stars and a NABERS water rating of 4.7 stars. Governance is a critical pillar of ESG, and your Board remains focused on ensuring management adheres to CLW's strategy and operates the REIT with professionalism and integrity. We're acutely aware of our responsibility to act in the best interests of all security holders.
Our goal is to ensure CLW continues to deliver stable, secure income and some long-term growth through a portfolio of high-quality assets with long WALEs. The Board is committed to aligning and leading governance frameworks to support transparency and disclosure. On behalf of the Board, I'd like to thank you all for your continued support and interest in CLW. I'll hand over now to Avi, who can give you a review of our financial and operational performance from FY 2025 and an outlook for FY 2026.
Thank you, Glenn. I'd like to start by briefly discussing the financial performance of the REIT in FY 2025 and some highlights from the year. I'm pleased to report that we delivered operating earnings per security of AUD 0.25 in line with our operating guidance provided. Our NTA at 30 June, 2025 is AUD 4.59 per security. The portfolio delivered 3% like-for-like net property income growth, benefiting from the 54% of the REIT being CPI linked and the balance with fixed reviews. The portfolio is sitting at a very high occupancy of 99.9%, and CLW has a long WALE of 9.3 years, providing security and continuity of income to our investors. We remain focused on prudent capital management. During the year, we settled the remaining properties from our financial year 2024 divestment program, settling AUD 299 million of sales. Additionally, we continued portfolio curation with a further AUD 57 million of divestments.
Proceeds from these sales were used to reduce debt. Since year-end, we have closed several strategic acquisitions in the social infrastructure and office sectors for the total of AUD 229 million. Balance sheet gearing after completion of the current divestment program is at 31.4% in the middle of our target gearing range. 89% of drawn debt of the REIT at the year-end was hedged, providing protection against interest rate volatility. Moody's also reaffirmed CLW's Baa1 investment-grade credit rating, demonstrating its support of CLW's de-risked credit profile. As we look ahead to future portfolio valuations, it's helpful to reflect on how CLW's sector cap rates have evolved over recent years. The cyclical nature of property markets is evident in the movement of capitalization rates across our diversified portfolio.
On a like-for-like basis, sector cap rates have expanded in recent years by roughly the same amount that they compressed from June 2022 to December 2022. Despite this cap rate expansion, like-for-like capital values across our portfolio are on average 18% higher in 2025 compared to 2020, driven by both contracted and market rental growth. Our discipline focused on long-leased assets, high-quality tenants, and structural rent escalations continues to deliver strong outcomes. We're also encouraged by the market's positive response to CLW's return to EPS and DPS growth. Over the past 12 months, CLW's security prices rebounded significantly and is now trading much closer to its net tangible asset value. A key achievement in FY 2025 was the successful execution of CLW's strategic asset divestment program. During the year, we completed AUD 357 million in property sales, strengthening the balance sheet and creating capacity for capital management initiatives.
We have utilized the capital provided from these asset sales to deploy into portfolio-enhancing and accretive acquisitions. Following the property sales, we acquired six portfolio-enhancing opportunities that will be earnings accretive in this financial year and beyond. Importantly, these acquisitions increased CLW's exposure to Commonwealth government-leased assets and social infrastructure properties. In the social infrastructure sector, we've completed three transactions. Firstly, the Department of Defence Building in Canberra. This is a critical asset within Canberra's defence precinct, occupied by the Department of Defence since its construction. The asset has a two-year lease term with significant land for expansion and redevelopment. It was acquired at a passing yield of 14.9%. The Border Force Building in Bulla, Melbourne was the second acquisition in the social infrastructure sector that we acquired. This asset is leased to the Commonwealth Government with 11.4 years remaining and 4% annual reviews.
It was acquired at an 8.1% passing yield, providing stability and growth. Third, we increased our investment in the Geosciences Building in Canberra, upweighting from 25% to 33.5%. The property is leased to the Commonwealth Government with 6.9 years remaining on its lease at settlement and benefits from 3% annual reviews, and it was acquired on a passing yield of 8.4%. 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 Crow's Nest adjoining the portfolio's existing Crow's Nest Hotel. Both properties were acquired on a sale and leaseback with Endeavour Group, with an average WALE of nine and a half years. Finally, CLW acquired the remaining interest in the Westpac Building in Cogra to take our ownership interest to 100%.
The property is leased to Westpac with 9.1 years remaining and was acquired on a passing yield of 7.3%. At year-end, the REIT held 510 properties valued at AUD 5.5 billion, a WALE of 9.3 years and virtually 100% occupancy. The percentage of the REIT's properties with triple net leases was 54% of the portfolio net income of the REIT. At the end of the period, the portfolio weighted average cap rate was 5.4%, reflecting the high quality of properties, income security afforded by the tenants, and desirable location of assets. The acquisitions in the social infrastructure sector, which closed in July 2025, will likely see the portfolio's exposure to this attractive asset class increase further in FY 2026. CLW's best-in-class tenant register provides portfolio quality and diversity. 99% of the REIT's portfolio is leased to government, ASX-listed, multinational, and national tenants.
Importantly, these blue-chip tenants are in resilient industries, and the REIT continues to generate strong rental growth. We also have a high proportion of tenants operating in the non-discretionary grocery and food sectors such as Woolworths, Coles, Arnott’s, and Metcash, and our BP, Australia, and New Zealand portfolios on long triple net leases provide us with exposure to the resilient fuel and convenience sectors. I'd now like to reaffirm CLW's FY 2026 earnings guidance. Subject to interest rate, inflation expectations, and barring unforeseen events, CLW expects operating EPS of AUD 0.255 and DPS of AUD 0.255 per security, representing a 2% increase on FY 2025. Based on yesterday's closing price, this equates to a distribution yield of approximately 5.9%, significantly above the ASX REIT 200 benchmark yield of approximately 3.1%. CLW's prospective yield is higher than all large cap REITs in Australia and well above small cap sector average.
Our portfolio strength lies in its long leases, with 54% of leases being triple net. This provides a highly secure income stream, low capital expenditure leakage, and lower short-term lease expiry risk, reducing exposure to vacancy, incentives, refurbishments, and market volatility. A high proportion of CLW's assets are mission-critical to our tenants' operations, supporting our conviction in maintaining industry-leading occupancy and consistent rental income across market cycles. In closing, I'd like to thank my fellow directors for their ongoing guidance and support and you, our security holders, for your continued trust. We remain focused on delivering a resilient Long WALE portfolio leased to high-quality tenants and providing investors with sustainable income and long-term capital growth. I'll now hand back to the Chair to open the meeting for questions.
Thank you, Avi. As there are no formal resolutions put forward at this annual general meeting, I'll now open the meeting to questions. If you have a question, could you please introduce yourself? If you're representing a company, advise where you're from. If you have more than one question, I ask that you ask them all at once.
My name is Dushyant Punjabi. As the yield curves are steepening this year, how does it affect your debt profile since you have got 35% net gearing? In terms of your non-current liabilities, how does it impact your debt profile over the next 5 to 10 years?
The gearing in relation to the company, we have a policy of looking for balance sheet gearing that sits between 25% and 35%. We have a number of joint ventures, interest in joint ventures, where gearing in those ventures is determined by each committee that owns those individual assets. They are typically higher than 35%. They're often in the 40%- 50% ranges. The thing that makes Charter Hall Long 's portfolio unique is its length of WALE. Where you have an investment in a property that might be leased to a government for 15 years, your ability to borrow money is much greater than a normal asset that might have five or six years of office leased to 10 different tenants. We look at gearing in a holistic basis and at a project level for each individual investment. We're comfortable with our 25%- 35% range.
We know at the moment that we're pushing towards the end of that range. The biggest thing that changes that range is the valuation of our property investments. Each six months, we have our whole portfolio revalued. Over the course of the 12-month period, every single asset has been revalued by an independent valuer, not the Board, not management. We're constantly getting an update on the true value or the market value of our investments. We've been through a cycle in the last three or four years where cap rates have increased, capital values have decreased. I think it's fair to say that the general property market, not just CLW and not just Charter Hall , the general property market is pretty much of the belief that those increases in cap rates and reductions in values, that time in the cycle has passed.
We noticed in our most recent six-monthly revaluation that the delta of the dollar value of the variation was very small. I think we're moving into a period in the market where we're likely to see asset values starting to increase. As interest rates come back, cap rates will get lower, and as a consequence, the capital value of our assets is going to rise. That will reduce our gearing. From the Board's perspective, we see that as an opportunity to increase the portfolio selectively by buying good assets on a transaction-by-transaction basis and the gearing matching the quality and the specifics of those individual assets. That's sort of an overview of how we see gearing and how we see it operating.
From time to time, you'll read some analyst report that will say CLW has gearing somewhat higher than its peers, but we don't have a peer that has a 10-year WALE. When we talk about 10-year WALEs, that includes our hotel portfolio at ALE, which has a three-year lease expiry. The hotels that are worth, I think there's 80-odd hotels all over Australia. They've been hotels for, on average, when we bought them four years ago, I think they'd been hotels for, on average, over 60 years. The tenant has several 10-year options. Whilst our numbers reflect a WALE of three for those hotels, I'd be very surprised if in 23 years' time we're not back in this room. I won't be in this room, but the people in this room will be talking about still owning those assets leased to Endeavour Griffiths Hotels. Hopefully, that helps.
Hopefully, your COVID period is over, and you have already seen the worst part of it.
Oh, absolutely. Yes, we are nowhere near our debt covenants. We have huge capacity for values to fall without causing any concern to the Board in relation to our levels of debt. Three years ago, it was a different story. We are in a different part of the cycle now and we see some growth ahead in terms of selectively acquiring the right assets or recycling assets that we currently own where we can put that money into a new asset and make a better return.
I'm first.
I'm first, sorry. Dariusz Petrzek, security holder. I'll just make a comment first and a question. With the Google, when it displays the price quote and market cap of CLW, it's actually showing here market cap AUD 10.7 billion, which is incorrect, obviously. Google sometimes does that. That's my comment. Because the market.
If you read it on the internet, it's got to be true.
Because obviously when you calculate the NTA, the market cap will be less than AUD 6 billion, right? AUD 5.5 billion, yes.
I think we've got net assets of about AUD 3 billion, AUD 3.5 billion, and I think our market cap's probably 10% below that, something like that.
My question is in trying to assess the value, like I'm looking at another number, dividend yield, which is pretty close to 6%. My question is, because I'm trying to assess kind of, you know, the medium value of the CLW in a way that I want to kind of like get the historical average. My question is, do we remember when the fund was listed in 2016, right?
Correct.
Do we remember what it was like at the moment? We have 6%, pretty much we can round it up. Do we remember what it was at the listing?
I don't remember exactly, but I would think it was around 6:00.
6.1%.
When we listed.
We are traveling at sort of average value for the investor.
I think.
It listed at.
It listed at.
AUD 4.
AUD 4, yes.
We're now at AUD 4.30 and it's a yield of 6%. The yield's gone up.
The yield, so there was.
6% at AUD 4.00 and now it's 6% at AUD 4.30.
Got you, yeah.
Yeah.
Okay.
It's gone up. It was up, and the return along the way actually was even higher previously. The distributions obviously have gone backwards a little bit in recent years just because interest rates went up. Your return along the way has been a lot higher than that 6% per annum because we were paying out a lot more before interest rates went up again.
Yes, obviously. I mean, the yield will be the function of whatever the price the person was buying at.
Correct. Yeah.
As well, yeah.
The earnings, yeah. I think it's fair to say we have been, because we've now been in existence nine years, we've pretty much seen a cycle, you know, and I think we're at the point where the cycle's turning back up. We had some tailwinds that helped us in the first few years when we had low interest rates. We had a good portfolio, but not a great portfolio. I think today we've got a great portfolio. I think the strength and the quality of our portfolio today compared to 2016 is almost unrecognizable. I think we've really got a much higher quality set of assets and tenants now than we did when we started, and we did that through acquisitions. We had a difficult period like the whole property market did when interest rates moved in a one-six monthly period.
I think they moved from virtually 0% to 3% in six months. Never happened in my business lifetime. May have happened before mine, but I couldn't recall it. That had a really detrimental effect on all property businesses all around the world. The good news is we've come through that cycle and we've delivered each and every year what we told our investors we were going to pay them at the beginning of the year in distributions and earnings. We've delivered on that for each of the nine years and we intend to keep doing that. Sorry, there's a lady here.
Thank you. Christina Ritchie, I'm a shareholder through my self-managed super fund. My question is related to insurance costs. They seem to be increasing dramatically for property these days. How much will that impact the bottom line going forward? Do you take that into consideration when you acquire properties or you look at divesting properties? With climate change considerations now being included with insurance company premiums, do you expect any of the current portfolio to be affected by that?
Okay, thank you for your question. In terms of insurance, we are no different to any other property company. Yes, the insurance market has been difficult at times and increased and premiums have gone up. Relative to our income, insurance is quite a small component of our income. One of the benefits that we get by being an externally managed fund is we get some benefits of the Charter Hall Group's buying power. The Charter Hall Group manages, at last count, something like over AUD 80 billion of property and real estate. When the Charter Hall team are negotiating CLW's insurance premiums for our AUD 3 billion of properties, we're part of an AUD 80 billion negotiation. I think relative to other companies our size, our insurance costs are quite efficiently priced and we get reasonably good deals because of the group's buying power.
Also, the way that the group manages and the claims that the group has had in the past, it's very, very highly regarded by the insurers. We're an owner of choice, if you like. In terms of climate change, I think the assets that we have, we have 500 assets spread across Australia. It's difficult to say whether any individual one will or won't be affected and by how much. Certainly, we're affected by the economy and therefore what happens in the economy might have an impact on some of those properties. It's a difficult one to answer. I think because we are part of a global market, we're going to see increases in insurance across the world in all sectors because of more of the events that you talk about from climate change, particularly the storms and bushfires and things of that nature.
I like that. In relation to insurance, firstly, because of the buying power that Glenn referred to, our premiums actually are coming down. We go overseas every year. We go to London, where there's the center of the global insurance market, to negotiate directly with our underwriters to negotiate premiums. Because of our buying power, we're able to do that. The other important point is because of our lease structures, 54% being triple net and the vast majority being net leases, we pass on a lot of those costs to our tenants. They don't actually impact the investors. The tenants pay those costs. The cost to the investors is fairly negligible in terms of insurance cost. Climate risk is a very important consideration for us.
We do reviews of all our assets regularly with climate adaptation plans to look at things like rising sea levels, that sort of thing, and how they're going to impact our properties. When we acquire a new property, that's part of our due diligence process where we'll look and we engage specialist consultants in that area to do the mapping around, for example, temperatures rising, water levels rising, and how that's going to impact the property. That forms part of the basis on which we look at the analysis of whether we should acquire a property or not as well. That is an important consideration that you've raised and is something that we take very seriously and include as part of our important part of our underwrite when we look at new assets.
You mentioned that you're linked with BP. In the view of the changing landscape and of that industry, I just wondered if you'd expand on how you see that playing out. Also, what would the WALE be on those? Would it vary from location to location?
Avi, could you start?
Look, the BP portfolios, I think the way we looked at it when we acquired those assets, first of all, we looked at it in the view that, we're partnering here with probably, if not one of the best operators in the country. Importantly, BP retained 50% interest in all those properties. We acquired half, they kept half. That gives us a lot of confidence that the properties that they put into the portfolio that we acquired are ones that they want to own long term. They're not ones that, the ones that they didn't put into the portfolio are ones that they just sold off. The other important consideration, they're all 20-year leases, every single property, so very long leases.
I think when you look at what BP are doing globally and they're at the forefront of changes in their industry, particularly in Europe where they're based, and they're rolling out a lot more EV charging, there's a big focus on the convenience retail aspect. The shop and what's selling out of the shop, not just relying on fuel. Those changes, the rollout of EV, the focus on the convenience part is very important. The final point I'll make in all that, when we did our review of the portfolio when we acquired it, we looked at the land value on its own without a service station on it. We said, right, what could that be in the future if BP didn't need the site anymore in 20 years' time? The vast majority of the properties in our portfolio are in metropolitan areas.
They're typically corner sites in really good locations. Roll forward 20+ years, if BP decide they don't want to occupy those properties anymore, we feel that we've acquired them at a price that redevelopment of the site, whether it's for retail use or office or residential, would be higher value than what's currently on the site. We think it's actually, they handed back some sites. It's a great outcome because we think they're worth more potentially without BP operating from them. That's sort of a bit of the background in terms of how we looked at that portfolio when we acquired it.
Okay, thank you.
Thank you, Brian.
Any further questions?
What's the average cost of debt at the moment? AUD 4.3%. Thank you.
If there are no further questions from the floor, Avi, are there any from the internet? Any questions come through?
No, none. Early shaking ahead in the back of the room, no.
Okay, if there are no other questions, then having no other business to be considered, I now declare the formal business of the meeting closed. I thank you for your attendance today and your ongoing support of CLW.