Ladies and gentlemen, thank you for standing by. Welcome to the Charter Hall Retail REIT 2023 half-year results briefing. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. At which time, if you wish to queue for a question, you need to press star followed by one one on your telephone keypad and wait for your name to be announced. Please note that this conference is being recorded today, Thursday, the 16th of February, 2023. I would now like to hand the conference over to your host today, Mr. Ben Ellis, Retail CEO. Thank you. Please, sir, go ahead.
Good morning, welcome to the Charter Hall Retail REIT first half results for FY 2023. My name is Ben Ellis, and I am the Retail CEO for Charter Hall and an Executive Director of CQR. Joining me this morning is Christine Kelly, Head of Retail Finance and Deputy Fund Manager of CQR. I would like to commence today's presentation with an acknowledgement of country. Charter Hall is proud to work with our customers and communities to invest in, develop, and manage properties on lands across Australia. We pay our respects to the traditional owners, their elders past, present, and emerging, and recognize their continuing culture and contribution to this country. Turning to slide five and our portfolio highlights for the period. CQR continues to deliver a resilient and growing income stream for our investors.
Operating earnings per unit were up 0.9% to AUD 0.1435 for the period, and distributions per unit were up 11.1% to AUD 0.13 compared to first half of FY 2022. For the period, we completed 194 leasing transactions, we again achieved positive leasing spreads of 3%, up from 2.3% at June 2022. This strong leasing activity translated into portfolio occupancy, increasing to 98.6%, up from 98.5%. Valuation growth across the portfolio continued with the portfolio value increasing by AUD 119 million or 2.8%, reflecting the attractive nature of our assets and the benefit of active portfolio curation towards higher quality assets that generate higher quality income growth.
This drive a further lift in net tangible assets up 2% to AUD 5.01. The continued diversification of CQR's portfolio to include high quality NNN leased, Convenience Long WALE retail assets and dominant convenience shopping center assets is unique to CQR, and it is this quality and diversification that drives continued performance. These convenience assets deliver positive sales growth for our tenant customers, which translates into inflation-linked income growth for CQR unit holders. The portfolio's history of consistent positive leasing spreads, high occupancy levels, and tenant quality is what delivers resilient income growth. Turn to slide six and the REIT's strategy. CQR strategy is to be the leading owner of convenience retail property that services predominantly the non-discretionary retail sector.
We achieve this by enhancing the portfolio quality through curation of the assets we own, active asset management to drive strong rental growth, optimizing excess site coverage and floor space whilst maintaining prudent capital management. The NTA growth created for CQR from judicious Convenience Long WALE retail acquisitions in recent years has generated capital growth while also adding a large and growing component of CPI-linked rental growth to the portfolio, complementing the fixed and indirect inflation-driven growth from our convenience shopping center portfolio. This strategy continues to deliver a high quality, resilient and growing income stream for our investors, featuring high underlying land values and low site coverage, allowing for expansion and redevelopment potential for the future. Slide seven outlines how we executed against this strategy, enhancing the portfolio quality through portfolio curation and active asset management.
Since 2017, we have been actively enhancing our convenience retail portfolio. We've acquired AUD 511 million of convenience shopping center assets in metropolitan and growth corridor locations, while divesting AUD 619 million of non-core assets that had competition challenges or limited growth potential. These acquisitions have delivered a 10.3% unlevered IRR for CQR investors since acquisition. Additionally, we've invested AUD 786 million into NNN leased Convenience Long WALE retail assets with CPI-linked rental growth that complements CQR's convenience shopping center portfolio. All of CQR's Convenience Long WALE retail assets have been secured off-market through Charter Hall's deep tenant customer relationships and market-leading transaction team, including sale and leaseback and corporate transactions and opportunities to partner with high-quality wholesale investor partners.
Through these acquisitions, we have introduced new major tenant customer relationships with BP and Ampol, increasing CQR's major tenant income while providing higher growth earnings that are incredibly capital efficient. CQR investors have benefited from a 21.6% unlevered IRR since acquisition, delivered from the BP and Ampol portfolio acquisitions. In our convenience shopping center assets, we've also continued to invest prudently in ways that enhance the portfolio quality and entrench the dominance of our centers within their respective catchments. We've developed seven new pad sites in the last four years, successfully remixed eight Target stores, delivering a 17% income uplift and undertaken a significant and successful redevelopment at Rosebud Plaza in Victoria. We continue to actively partner with our tenant customers, which has seen us maintain our industry-leading relationship satisfaction score in the annual Monash University CentreSAT survey.
I'd like to thank our in-house Charter Hall management team. Without them, these results would not be possible. Slide eight details how our strategic focus translates into income growth. What's apparent when we look at CQR's portfolio today is the increased income growth that our major tenant customers achieve. 56% of portfolio income comes from seven major tenant customers. 36% of these tenant customers have CPI-linked rental reviews. CQR will benefit from major tenant income growth of 2.6% in FY 2023 compared to 1.2% from several years ago, where we were solely reliant on turnover rent to drive major tenant rent growth.
This major tenant income growth is a direct result of CQR's increasing exposure to NNN lease Convenience Long WALE assets benefiting from CPI-linked rental reviews, as well as our continued focus on dominant metropolitan or growth corridor-located convenience shopping center assets. Additionally, the income growth these assets produce in times of high inflation, along with the capital efficiency from NNN leases, has seen them continue to appreciate in value since acquisition. It's the quality of our portfolio and the major tenant customer rental growth that differentiates CQR from its peers and underpins portfolio value. Slide nine demonstrates that value growth in more detail. Since acquisition, the Convenience Long WALE retail portfolios and CQR have delivered a collective unlevered IRR of 21.6%. The nil CapEx nature of these NNN lease assets gives CQR a strong advantage when compared to peers and contributes to strong distribution growth.
The quality of CQR's tenant customers providing the secure income also means greater resilience through cycles. The underlying land value of these assets also provides future optionality and ensures ongoing valuation support. Importantly, as mentioned earlier, all these assets have been transacted off market and demonstrate the value of CQR's management by Charter Hall and the access to their superior tenant customer relationships and market-leading transactions team. Slide 10 looks at our ESG highlights for the period. CQR continues to deliver on a sustainability commitment of net zero carbon emissions by 2025. We've now installed more than 21 MW of solar across the portfolio and 6.75 MW hours of battery storage.
We are on track to provide 100% renewable electricity to the common areas of all of our convenience shopping centers in 2025. We've also seen an improvement in our NABERS energy and water portfolio ratings up to 4.9 and 4.2 stars respectively. The CQR portfolio achieved a GRESB score of 90 in the 2022 GRESB assessment, which makes CQR a top quintile performer in the global GRESB ratings. We're also deeply involved in the communities in which we operate and recognize the important role our convenience shopping centers play. This year, during the devastating floods that impacted northern New South Wales, CQR donated 7,800 meals to impacted schools and provided disaster recovery funding. Throughout FY 2023, we will continue to work with the communities in which we operate and provide ongoing, meaningful support to our communities.
I'll now hand over to Christine to talk through the financial results for the period before moving on to the operational performance in more detail.
Thanks, Ben. Our operating earnings and distributions can be found on slide 12. We delivered operating earnings of AUD 83.4 million or AUD 0.1435 per unit, and distributions of AUD 75.6 million or AUD 0.13 per unit for the six months to 31 December 2022. This reflects EPU growth of 0.9% and DPU growth of 11.1%. Our operating earnings payout ratio has increased from 82.3% to 90.6%, reflecting the absence of COVID-19 support during the period when compared to the prior period, and the growing proportion of NNN leased assets. Total net property income has risen 6.9% to AUD 117.3 million.
This income growth has been driven by same property NPI growth of 2.9%, split between shopping centers of 2.8% and our Long WALE convenience retail of 3.7%. Further growth was delivered from our off-market investments in Butler Central in 2021 and the Ampol portfolio in late FY 2022 and the Z Energy and Gull portfolios in this period. The 2.9% same property NPI growth reflects strong specialty performance, delivering a reduction in loss rent and continued positive leasing spreads, coupled with the solid performance of our majors, of which 36% have CPI-based lease reviews. The strong performance of our specialties is also reflected in over 80% of all COVID-19 rent deferrals are now repaid and rent collections are now at pre-COVID-19 levels.
Finance costs and other expenses have increased, reflecting the increase in interest rates, net portfolio growth through off-market acquisitions, capital spend, and valuation growth. The difference between statutory profit and operating earnings is primarily due to positive valuation movements. A reconciliation of statutory profit to operating earnings and distributions can be found in Annexure 2 of the presentation. Turning now to slide 13 and the balance sheet. Our total property portfolio value increased by AUD 144 million over the period, with positive valuation movement of AUD 119 million, the off-market acquisitions of the Z Energy portfolio for AUD 118 million, the Gull portfolio for AUD 58 million, offset by the divestments of the Coles Distribution Center in Adelaide for AUD 153 million. Borrowings have increased AUD 69 million due to net acquisitions and capital investment.
The primary impact on other assets and other liabilities is the movement in derivatives. NTA has increased 2% or AUD 0.10 from AUD 4.91 to AUD 5.01, with valuation gains partially offset by mark-to-market movements on our derivatives. Our key valuation metrics are shown on slide 14. 100% of the portfolio is revalued externally as at December 31, with a portfolio value increasing from AUD 4.3 billion to AUD 4.44 billion. Since 2020, we have externally revalued 100% of our portfolio every six months to ensure our asset valuations reflect market. Portfolio valuation growth of 2.8% or AUD 119 million reflects the income growth the portfolio has delivered, with income growth offsetting mild cap rate expansion.
The shopping center portfolio delivered 1.4% valuation growth, and the Long WALE portfolio delivered 7.3% growth. On a like-for-like basis, the Long WALE portfolio growth was 3.6%, with CPI-linked rental increases offsetting the 12 basis point cap rate expansion. Both segments experienced cap rate expansion with seven basis points expansion in the shopping center portfolio and 21 basis points in the Long WALE portfolio, resulting in the total portfolio cap rate expanding slightly from 5.2% to 5.28% as of 31 December 2022. Over the last 12 months, 86% of valuation growth was driven by income. With continued income growth from our convenience-based shopping centers and all our Long WALE convenience retail having annual CPI reviews, we expect valuations to be well supported going forward.
Slide 15 shows key highlights of our capital management. Our $126 million of liquidity as at 31 December sees CQR in a strong capital position. The weighted average debt cost at 31 December was 3.1%, with our forecast weighted average cost of debt for FY23 slightly higher at 3.2%. The 3.2% is a reflection of existing hedging of 79% and forecast BBSY 3.5% for the second half of FY23. Footnote 2 provides further details on our BBSY assumptions. Following recent refinancing activity, we extended $254 million of joint venture debt. CQR has no debt expiring until FY26 and a weighted average debt maturity of 4.1 years. The weighted average drawn margin across our portfolio is now 1.55%.
Hedging for FY 2023 is 79%, with our average hedging till June 2025 of 50%. We continue to monitor the hedging market to ensure that we deliver growing returns for our unitholders. Our balance sheet gearing remains low at 27.1%, and look-through gearing is in the lower end of the 30%-40% range at 32.6%. We are comfortably within our gearing and ICR covenants, and during the period, Moody's reaffirmed our Baa1 issuer rating with a stable outlook. Now back to Ben to present the operational performance of the fund and our outlook.
Thanks, Christine. Now turn to slide 17 and the portfolio summary. During the period, our convenience shopping center occupancy improved from 98.5% to 98.6%. Portfolio MAT growth was strong at 4.7%, reflecting the resilience of the nondiscretionary nature of the portfolio. Portfolio WALE remains stable at 7.3 years following the off-market acquisitions of the Z Energy and Gull portfolios, as well as recent renewal activity. As Christine has outlined, valuation growth, coupled with off-market acquisitions and disposals, has seen the portfolio value increase to AUD 4.4 billion. Importantly, the portfolio now has 59% of total income growth directly and indirectly linked to inflation, with 23% of income growth directly linked to CPI and a further 36% of total income growth indirectly linked to inflation through turnover rent mechanisms.
Moving now to slide 18, outlining our tenant customer composition in more detail. 56% of our total portfolio income comes from major tenant customers, providing resilience and certainty to CQR's income stream. As a result of active portfolio curation, major tenant customer rents are expected to grow at 2.6% in FY 2023, providing a significant earnings benefit for CQR unit holders and differentiating CQR from its peers. Across the major supermarket providers, we remain well-balanced between Coles and Woolworths and continue to partner with ALDI across the portfolio. Following off-market acquisitions, Ampol and Gull are now the fifth and eighth largest tenant customers, respectively. Importantly, when we look at our exposure to any one specialty retailer, it remains limited, and we retain a clear bias towards everyday needs and convenience-based retail, food, and services. Turning now to slide 19 and our Convenience Long WALE retail portfolio.
Our Convenience Long WALE retail assets now represent 24% of CQR's portfolio by value and 18% of total portfolio income. These assets are all NNN leased, meaning nil CapEx, and provide a true AFFO yield for CQR investors. Their rent review mechanisms are CPI-linked, delivering meaningful income growth to the portfolio with the Convenience Long WALE retail major tenant growth forecast to be 6.2% in FY 2023. These Convenience Long WALE assets complement CQR's existing convenience shopping center portfolio and provide valuable diversification benefits, enhanced tenant covenant, and security of income with a strong major tenant income growth profile. Turning now to slide 20 and discussing our supermarkets in more detail. Supermarkets remain the foundation of CQR's convenience shopping center portfolio.
During the period, supermarkets delivered MAT growth of 3.3%, the number of supermarkets in turnover remains high at 62%, with a further 19% within 10% of their turnover rent threshold. In an ongoing and elevated inflationary environment, turnover rent and CQR's high percentage of stores paying or within 10% of turnover thresholds provides valuable earnings growth exposure to inflation. The number of supermarkets paying turnover rental or within 10% of their thresholds is unique to CQR and not as readily available in less mature or lower quality portfolios. Charter Hall's strong tenant customer relationship focus has supported Coles and Woolworths to deliver click and collect and direct-to-boot facilities across the portfolio.
We have 95% coverage for these major tenant customers, this ensures we capture online sales for the purpose of calculating turnover rent as part of our partnership with Coles and Woolworths. Turning now to slide 21 and our specialty tenants. The strong sales productivity of our convenience shopping center assets and their dominant position within their catchments ensures we continue to achieve strong leasing activity with 194 leases completed during the period, made up of 82 new leases and 112 renewals, delivering positive leasing spreads of 3%. Our percentage of tenant customers on holdover remains low at 1% of total income, pleasingly, our retention rate remains high at 85% as retailers continue to see the attractive nature of our centers.
Specialty sales growth was strong at 8.1%, and specialty productivity hit an all-time portfolio high of AUD 10,259 per square meter. Occupancy costs remain very sustainable at 11.5% and provide room for future rental growth. The portfolio's strong sales productivity, sustainable occupancy costs, continued positive leasing spreads, and high tenant retention demonstrates the ongoing defensive and resilient nature of CQR's income. Finally, turn to slide 23 for our outlook and guidance. CQR's strategy remains consistent and is focused on providing investors a resilient and growing income stream. Our expectation is that positive leasing spreads, high occupancy levels, and MAT growth will continue. We also expect our portfolio to benefit from direct and indirect inflation-linked rental growth and our increasing exposure to CapEx-efficient NNN leases.
We will continue to enhance the quality of our portfolio through curation and active asset management, complemented by an increased focus on Convenience Long WALE retail assets. This is central to how we will deliver growth. Barring any unforeseen events, we reaffirm that FY 2023 EPU is expected to be no less than AUD 0.287 per unit, representing growth of no less than 1% on FY 2022 EPU. FY 2023 DPU are expected to be no less than AUD 0.258 per unit, representing growth of no less than 5.3% on FY 2022 DPU. That ends the formal presentation, and with that, I now invite questions.
Thank you. At this time, if you would like to ask question, please press star followed by one one on your telephone keypad and wait for your name to be announced. If you would like to cancel your request, please press the pound or hash key. Please press star one one again. Please stand by while we compile the Q&A roster. First question comes from Murray Connellan from Moelis Australia. Please proceed.
Morning, Ben. Morning, Christine. Just our guidance was reaffirmed despite a high cost of debt assumption. Was wondering whether there are any other moving parts of the business that have maybe picked up the slack versus expectations? Was there just a bit of slack in that, or a bit of safety built into that minimum guidance number?
Thanks, Murray. Now, look, we, you know, we've obviously been pretty consistent in our messaging across guidance from the full year into the half year. You know, the ongoing sales productivity and strength of our portfolio gives us comfort around our guidance going forward. We're very comfortable with what we've produced.
Also, Murray, as you recall, we have high levels of hedging in the portfolio over FY 2023, so the impact on interest costs, although there, are not as material as maybe for others.
Sure. Thanks. Just noting that the dividend that was paid out in the first half slightly exceeded the run rate to achieve that AUD 0.258 guidance number. Would you expect all things going forward the second half dividend payout to be similar to the first half, or would you look to reduce it half and half to make that guidance number?
We expect it to be reasonably the same period on period. The biggest difference, obviously, from this time last year was how we addressed the COVID-19 tenant support. That's not there at the moment. We expect a full year payout ratio to be around that 90%.
Thanks very much. Thank you for the questions. One moment for the next questions. Our next questions comes from Stuart McLean from Macquarie. Please proceed.
Good morning. Thanks . Just been making comments around portfolio curation and it looks like Allenstown is currently held for sale. Can you give a bit more detail there and around any other assets that, or what types of assets that might be non-core at the moment?
Morning, Stuart. Yeah, you're right, mate. We've got Allenstown and Brickworks as listed as held for sale, both of which have exchanged, and we're working through the final details towards settlement on those. Look, we're gonna continue our portfolio curation to ensure the quality of our portfolio continues to improve with an absolute focus on driving better quality income growth from both our major tenant and our, you know, whole portfolio. Look, it's an active process we'll keep working with, there's nothing identified at this point in time, but as we've done in the past, opportunities will arise, and we'll look to recycle out assets to ensure we improve quality.
Those assets, for example, was there potential income hole on the horizon? Could they intensive from a CapEx perspective? What's about those assets that meant that they were on the, on the list to potentially be divested?
No, we got attractive offers on both of them, you know, the prices we're dealing with are at or above book value, which obviously supports valuations and shows the strength of the market more broadly. Certainly, you know, the assets we've recycled into, we've highlighted in our presentation how recycling to Convenience Long WALE retail has delivered incredibly strong income growth. That's something we think is very beneficial at the moment, we'll keep looking to opportunities to grow that income growth as we go forward.
Just on that Convenience Long WALE retail, side, is there, is that portfolio currently on market, or sale-like opportunities you're expecting in the near term, or just when the opportunity come up, you'll look to exercise over the medium term?
Yeah. Look, we'll investigate those as and when they come up. There's nothing on market at this point in time. What I will say, however, is that, you know, one of the benefits of being part of the Charter Hall Group is the access to off-market transactions is unparalleled, and we've been the beneficiary of that, and we're very lucky to have them working with us to drive opportunities.
Great. Thank you. Just a final question. Just on the hedge rate, appreciate the hedge profile is in the presentation, just to give an idea of what that, the hedge rate is for FY 2023 or 2H 2023, then as that hedge profile rolls off, what happens to the hedge rate into 2024 as well, please?
I can take the details offline with you, Stuart, but the hedge rate hasn't changed from what we had at the full year. That hedge rate for the hedge at the moment is 1.1%. As far as going forward, that doesn't materially change, but I can give you more detail.
Great. Thanks very much for your time.
Thank you for the questions. Our next questions comes from Steven Chia from Barrenjoey. Please go ahead.
Hi. Good morning, Christine. Just one question from me on the valuation of Long WALE portfolio. You know, there's 21 basis points of expansion, and your portfolio saw comp growth of 3.7%. Could you please expand on the income and discount rate assumptions used by the valuers?
Yeah, sure. Firstly, I'll just address the discount rates. For small assets for single tenanted as they, as the portfolio we are talking about is very much in line with, the valuers typically focus on the cap rate assumptions there as opposed to a DCF methodology. Look, you correctly pointed out there has been cap rate softening in that portfolio, but one of the reasons we diversified into it is the really strong underlying income growth we generated, forecast to be 6.2% this year. The NNN nature, meaning you've got no CapEx drag, is gonna continue to be resilient. We set up the full year. We've really focused on these sort of assets to look at that income growth to offset any potential movement in cap rates.
Great. Thanks.
For the questions. One moment for the next questions. Next questions comes from Alex Prineas from Morningstar. Please proceed.
Thank you. Good morning. Just wondering if, sort of over the medium term, you foresee, you know, about the same or perhaps increased or decreased levels of CapEx to satisfy, you know, ESG and environmental requirements, whether they be, you know, regulatory or just kind of expectations in the market. If so, to what, you know, would some of that be providing a return to you, for example, you know, solar panels, electricity generation and so forth? Would it just be, you know, a bit of a sunk cost? You know, can you give us a general view on? What your expectations are there?
Yeah, sure. Look, first things first, we've been very proactive in moving towards improving our ESG credentials. As noted in the presentation, we're top quintile in the Global GRESB ratings. We're very well advanced regards to solar, 21 MW hours. We've got 21 MWs and 6.75 MW hours of battery storage capacity in the portfolio, which, you know, ultimately, in a higher energy environment, price energy environment, is gonna be beneficial to our tenants and hence to our income streams. Going forward, we're just gonna continue working as we are. We've got no major huge projects that are required from a CapEx perspective. You know, we set a target of being net zero carbon emissions by 2025, and we're online in track to do that.
Okay, thanks very much.
Thank you for the questions. One moment for the next questions. Next questions comes from the line of Solomon Zhang from J.P. Morgan. Please go ahead.
Morning, Ben and Christine. A couple questions from me. Just on the like-for-like shopping center MAT growth of 2.8%. It was a bit down on full year 2022. Is there anything to call out there? I mean, just trying to reconcile that, given supermarket turnovers are broadly the same and occupancy is broadly holding. Was there sort of a material increase in outgoings or, you know, the downside of items to call out there?
No. Look, thanks for the question. We've always said that our convenience shopping center portfolio will operate between 2% and 3%. It's the upper end of that range. you know, we've come through a pretty volatile period where COVID impacted certain assets and others not as much. Ultimately, we've got record, sales densities at AUD 10,259 a square meter. We've got very high occupancy, great retention rates, low number of tenants on holdover. you know, we're happy where that sits, and we see that range of 2%-3% being able to be maintained. As portfolio quality continues to improve, as we've been working on, the higher end of that range is very much achievable consistently.
Great. Second question, just on the Rosebud Plaza development. What was the total CapEx there and unit cost? Will it be fully income generating in second half, or is there a bit of a ramp-up period?
The entire CapEx program there is approximately AUD 30 million. It absolutely is income generating. We've really significantly improved the performance of that asset with the first stage being open now, where we've moved Woolworths from a pad site on the car park into the shopping center. Anecdotal evidence from the trading tenants that have opened up show significant increases on prior trading, that just goes to show, once again, when you improve the quality of your assets, you generate better sales growth and hence rent growth going forward. We're incredibly proud of that. When we finish the stage two with Dan Murphy's opening up on the car park, we expect to see, you know, further trading conditions improve as we go forward.
Yeah. Do you have a yield on that AUD 30 million CapEx or?
Look, it's a hard one to analyze because it's ongoing, ultimately, this was a replacement of a Target store. We're taking an existing tenant out and moving it forward, but it's definitely above the cap rate of the asset, so it's been a good outcome for us. As I said, the beauty of these ones is not as much about what Day 1 is, it's about the trading performance going forward and the increased sales generation. Adding a Dan Murphy's down there, adding a brand new full line Woolworths, and the specialty sales that generate off that sets us up for really strong income growth going forward, and that's the key focus for us.
Yep, gotcha. Maybe just to follow up on the eight pad sites that you've got underway. I think you guided to about AUD 20 mil-AUD 30 mil of development CapEx per annum, or thereabouts. Is that sort of broadly in line, and the unit cost assumptions in those, please?
Yeah. No, that's right. You know, the pad sites will vary depending on whether they're just ground leases or we're doing a bit more physical work. From a yield perspective, you know, when we get just pure ground leases, as we said at the full year, I mean, you know, you can be high double-digit returns on those where you're building a Dan Murphy's on a pad site. You know, they're probably high single digit, but, you know, they're very strong returns. It just goes to show the ability for us to utilize the excess land and low site coverage of our sites to generate additional income. You know, we're lucky to have a development team and asset management team who are able to access these sort of opportunities and drive income for us.
Brilliant. Thank you. That's all from me.
Thank you for the questions. As a reminder, to ask question, you can press star one one on your telephone. The next questions comes from the line of Sholto Maconochie from Jefferies. Please go ahead.
Yeah. Hi, everyone. Thanks for your time. Just on the inflation on your slide, you talked about the cap at 6.2% in your forecast. Is that because you've hit the caps on your service station assets? Is that why you're forecasting that to get to that 2.6% major income growth?
Yep, that's exactly right. We've identified on our portfolio slide for Long WALE convenience retail, where we've got 6.2% forecast income growth. That's made up of uncapped CPI for BP Australia, we've identified and highlighted the caps and collars sitting in the balance of the portfolio.
Okay. Makes sense. What, what CPI assumption did you use for the uncapped component?
It's the actual CPI that was affected in September last year.
That rolled through our BP portfolio.
December.
-that had its rent review in December.
Okay, quarterly. Okay. That could be a positive benefit. When you go into 2020, second half 2023, 2024, that obviously benefits, that could potentially increase that number?
Yeah. Look, you know, it's exactly the reason why we diversified our portfolio to include really high-quality covenant tenants and this Long WALE NNN leased assets that give us superior income growth, no CapEx drag, and, you know, the covenant quality is unparalleled. We're really happy with it, mate, and I agree with your comment.
And then just finally, when you say 59% of the portfolio is directly and indirectly linked, directly is just it's CPI. What do you mean by indirectly again? Just remind me of that. I've just forgotten.
Yeah. That's fine. Indirectly effectively means that we've got turnover mechanisms in our supermarkets, which obviously, you know, as inflation rolls through, we get increased sales, and the increased sales translates into turnover rent. Given we've got 62% of our supermarkets in turnover, which is a sector high, that benefit will flow through to earnings.
That's great. That's everything for me. Thanks very much.
Thanks, Sholto.
Thank you for the questions. Once again, if you'd like to ask question, please press star one one. At this time, it appears to have no more questions from the line. Allow me to hand the call back to the management for closing remarks.
Thank you all very much for your time today. I know you're very busy with results. We look forward to seeing you all in the coming days and wish you the best of luck. Thank you.
Thank you.