Ladies and gentlemen, thank you for standing by, and welcome to Charter Hall Retail REIT 2022 half-year results briefing. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. It is now my pleasure to introduce Retail CEO and Executive Director of CQR, Ben Ellis.
Good morning, and welcome to the Charter Hall Retail REIT half-year results presentation for the period ending 31 December 2022. 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'd 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 and create places on lands across Australia. We pay our respects to the traditional owners, their elders past and present, and value their care and custodianship of these lands. Now turn to slide five and our portfolio highlights for the period. The operating and financial performance of CQR has remained strong throughout the first half of FY 2022.
Operating earnings per unit were up 8% to AUD 0.1422 from the first half of FY 2021, and distributions per unit were up 9.3% to AUD 0.117. The REIT's strong net property income growth was driven by our continued focus on active asset management and our recent off-market acquisitions of Butler Central and Western Australia and the BP New Zealand portfolio. These off-market acquisitions are aligned to our strategy to partner with major convenience retailers, providing a resilient income stream for our investors. For the first half of FY 2022, we again achieved positive leasing spreads of 1.8%, with renewals up 1.9% and new leases up 1.4%. This activity translated into portfolio occupancy of 98.4%, up from 98.3% at June 2021.
Additionally, as you will see later in the presentation, our rent outstanding for the first half of FY 2022 is only AUD 670,000 or 0.5% of portfolio billings for the period. Valuation growth across the portfolio was strong, increasing by 8.4% or AUD 312 million in the half, reflecting the attractive nature of the portfolio and the benefit of active portfolio curation towards higher quality assets. This drove a significant lift in net tangible assets up 13.2% to AUD 4.54. Looking forward, we expect to see continued strong demand for convenience and long WALE retail assets as investors see the value associated with resilient income streams and inflation-linked rental growth as characterized in the CQR portfolio.
As a result of these strong operating metrics, today I am pleased to announce upgraded earnings guidance for FY 2022 earnings per unit of no less than AUD 0.284 and distributions per unit of no less than AUD 0.245. Turning to slide six and the REIT's strategy. CQR's strategy to be the leading owner of property for convenience retailers remains unchanged. This is achieved through Charter Hall's strong tenant customer relationships, strategic portfolio curation to improve asset quality, active asset management to drive rental growth while maintaining a prudent capital position. The result of our strategy is that we will continue to deliver a high quality, resilient, and growing income stream for our investors. Slide seven outlines our strategy in more detail.
The REIT's portfolio of convenience-based assets are dominant in their respective catchments and provide essential everyday goods and services to the communities in which we operate. We partner with our major convenience retailers to facilitate omni-channel servicing through last mile home delivery, Click and Collect, and more recently, contactless pickup and direct to boot. We've benefited from Charter Hall's deep tenant customer relationships through a new strategic partnership with Ampol, increasing our exposure to market-leading convenience retailers and long WALE triple net leased assets benefiting from CPI-linked rental growth. We will continue our focus on all segments of the convenience retail market that provide essential goods and services as part of our ongoing portfolio curation strategy. Turning to slide eight and our most recent acquisition.
In December, as previously mentioned, we were pleased to announce the off-market acquisition of a 49% stake in 20 high-quality Ampol sites on an attractive 5% cap rate in partnership with Ampol. This off-market acquisition was a direct result of Charter Hall's existing relationship with Ampol and demonstrates the market-leading ability of Charter Hall to unlock attractive off-market sell and leaseback opportunities. Importantly, it introduces another major convenience retailer to CQR's portfolio, increasing the fund's income from major tenants to 53.9%. Following settlement, Ampol will be CQR's eighth largest tenant customer and represent 1% of portfolio income. This transaction has a positive impact on CQR's portfolio given the capital efficient triple net lease structure, ensuring no income or capital leakage for CQR investors, an average WALE of 15.6 years, and CPI-linked annual rent reviews.
I'll now hand over to Christine to talk through the financial results for the period before moving to the operational performance in more detail.
Thanks, Ben. Now turning to slide 10 and the financial impact from COVID-19 over first half FY 2022. The chart at the bottom of the slide shows that COVID-19 tenant support continues to progressively reduce as government-mandated restrictions ease and specialty sales and traffic rebound strongly and quickly. Over the period, CQR provided AUD 7.6 million as COVID-19 tenant support. This support was concentrated to New South Wales and Victoria. Support provided in Q2 FY 2022 of AUD 2.5 million reflects improved trading conditions as restrictions eased in those states. Our rent collection over the period continued to be strong and demonstrates the proactive approach taken by the Charter Hall team in working with our tenants to administer support. As at today, rent outstanding for first half FY 2022 is only AUD 670,000, or 0.5% of portfolio billings.
Notably, only 25% or AUD 1.2 million of COVID-19 rent deferrals provided over FY 2020 and FY 2021 remain outstanding. Our expected credit loss provision reflects our strong rental collection and considers the ongoing uncertain operating environment. As a result, we have increased our expected credit loss by only AUD 0.7 million compared to 30 June 2021 to account for the additional AUD 2.6 million of deferred rent provided over the period. Our operating earnings and distributions can be found on slide 11. We delivered operating earnings of AUD 82.1 million or AUD 0.1422 per unit, and distributions of AUD 67.7 million or AUD 0.117 per unit for the six months to 31 December 2021. This reflects growth of 8% and 9.3% respectively on PCP.
Our operating earnings payout ratio of 82.3% accounts for adjustments to operating earnings for COVID-19 support and capital expenditure during the period. Absent of COVID-19 support, the payout ratio would have been 91%, in line with pre-COVID-19 payout ratios of 90%-95%. Total net income has risen 9.7% to AUD 102.9 million. This income growth has been driven by same property NPI growth of 3.2% and our recent off-market investments in Butler Central and the BP New Zealand portfolio. The 3.2% same property NPI growth reflects strong specialty performance, delivering a reduction in lost rent and continued positive leasing spreads, coupled with the solid performance of our major tenants, resulting in both base rent and turnover rent increases.
Annexure 4 provides further details on the impact of these movements on the total portfolio composition. Finance costs and other expenses have increased, reflecting the net portfolio growth through off-market acquisitions, capital spend, and valuation growth. Consistent with prior reporting periods, our operating earnings includes recognition of income from those tenants that were provided COVID-19 tenant support. The AUD 5 million of rent-free incentives agreed are included in operating earnings and have been capitalized. The AUD 2.6 million of rent deferrals, offset by a AUD 0.7 million increase in expected credit loss, has been included in operating earnings and recognized in property income. For the period, the primary impact as change in statutory profit is due to the positive valuation movements. A reconciliation of statutory profit to operating earnings and distributions can be found in annexure 2 of this presentation. Turning now to slide 12 and the balance sheet.
Our total property portfolio value increased by AUD 363 million over the six-month period, with positive valuation movement of AUD 312 million and the AUD 51 million off-market acquisition of Butler Central in Western Australia. Borrowings have increased AUD 68 million, primarily due to the off-market acquisition and capital investment offset by the DRP. The primary impact on assets and other liabilities is the movement in derivatives. The 13.2% or AUD 0.53 growth in NTA from AUD 4.01- AUD 4.54 predominantly reflects the strong valuation gains over the period. Our key valuation metrics are shown on slide 13. 100% of the portfolio was revalued externally as at 31 December 2021, with the portfolio value increasing from 3.6 billion- 4 billion.
Of the AUD 312 million or 8.4% positive portfolio valuation movement, AUD 235 million was due to the shopping center portfolio, including AUD 37 million of capital expenditure and AUD 77 million from the Long WALE portfolio. Both segments experienced cap rate compression, with 46 basis points compression in the shopping center portfolio and 32 basis points in the Long WALE portfolio, resulting in a total portfolio cap rate of 5.38% as at 31 December 2021. The 12.8% or AUD 455 million portfolio valuation movement over the last twelve months demonstrates the quality and resilience of the portfolio and our continued commitment to active asset management. Slide 14 shows key highlights of our capital management.
Our liquidity sits at AUD 287 million, placing the REIT in a strong position to execute on strategic opportunities should they arise while managing any future uncertainties. The weighted average debt cost over first half FY 2022 was 2.6%. Over the past six months, we have refinanced AUD 220 million of debt and increased facilities by AUD 50 million, extending FY 2024 maturities to FY 2027 and taking the weighted average debt maturity to 4.1 years. Our interest rate hedging is 65.1%, and recent derivative transactions will ensure our hedging remains consistent over the next two years, minimizing the impact of interest rate rises over this period. Our balance sheet gearing remains low at 25%, and look-through gearing is at the lower end of the 30%-40% range at 31.9%.
The gearing levels will increase approximately 1% following the off-market acquisition of the 20 Ampol sites expected in Q3. We are comfortably within our gearing and ICR covenants, and during the period, Moody's reaffirmed our Baa1 issuer rating with a stable outlook. With over 50% of our portfolio income growth linked directly or indirectly to inflation, high levels of interest rate hedging, and strong liquidity, we are well-positioned in the current environment to continue to deliver a resilient and growing income stream. Now back to Ben to present the operational performance of the fund and our outlook.
Thanks, Christine. Turning now to slide 16 and the portfolio summary. Whilst COVID-19 disruptions continued in the first half of FY 2022, the resilience of CQR's assets remains evident as we continue to benefit from our strategy of aligning with major convenience retailers. As mentioned in our portfolio highlights, our occupancy improved from 98.3%- 98.4% during the period. Portfolio MAT growth was positive at 0.6% and up 7.8% for the two-year period. Portfolio WALE remains stable at 7.3 years, reflecting strong specialty leasing activity and majors lease extensions. As Christine has outlined, strong valuation growth, coupled with the off-market acquisition of Butler Central in Western Australia, has seen the portfolio value increase 10% to AUD 4 billion.
The characteristics of the resilient income growth, high proportion of major tenant income, and the quality locational attributes of the portfolio remain attractive to the broader investor market, resulting in the portfolio cap rate compressing from 5.81%- 5.38%. Importantly, the portfolio is well-positioned to take advantage of a high inflationary environment with over 50% of rental growth directly or indirectly linked to inflation. Moving now to slide 17, outlining our tenant customer composition in more detail. As mentioned earlier, we are pleased to add Ampol to our portfolio as a major tenant, and post-settlement, Ampol will be the REIT's eighth-largest tenant customer, representing 1% of portfolio income. This increases our total portfolio income from major tenant customers to 53.9%, strengthening the resilience and certainty of CQR's income stream.
Across the major supermarket providers, we remain well-balanced between Coles and Woolworths and continue to partner with Aldi to expand their footprint within the portfolio. Additionally, our Target remixing strategy will be finalized with the completion of Target Rosebud converting to Woolworths and Dan Murphy's, and I'll touch on this in more detail later in the presentation. Following the off-market acquisition of Butler Central, our fifth-largest tenant customer is now API. We're currently subject to a proposed scheme of arrangement with Wesfarmers, which would further increase our weighting to this major convenience retailer. Importantly, 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 18 and discussing our supermarkets in more detail. Supermarkets remain the foundation of CQR's shopping center portfolio.
During the period, supermarkets delivered MAT growth of 1.5% and two-year MAT growth of 10.9%. Importantly, over the same two-year period, we had a number of supermarkets complete their base rental reviews with AUD 1.9 million of turnover rent converting into base rent across 19 supermarket leases. This represents a 9.4% increase in their respective base rentals that has been captured permanently for CQR unit holders and equates to approximately 50% of the turnover rent previously paid during the corresponding period. In addition to these major tenant rent reviews, the number of supermarkets in turnover remains high at 62%, with the number of supermarkets within 10% of the turnover threshold at 18%.
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 and exposure to inflation. This is unique to CQR and not as readily available in less mature portfolios. Finally, we completed six new supermarket leases and term extensions and now have 53 Coles and Woolworths Click and Collect facilities across the portfolio. With two further Click and Collect facilities underway, the portfolio will have 95% coverage, and this ensures we capture online sales as part of our partnership with Coles and Woolworths. Turning now to slide 19 and our specialty tenants. Our specialty tenants traded well with MAT growth of 2.3%. While our New South Wales assets continued to experience disruptions associated with COVID-19, they still recorded positive MAT growth of 0.3%.
When excluding these New South Wales assets, the specialty MAT growth was strong at 4.8%. The desirable nature of our centers saw continued strong leasing activity with 219 leases completed, achieving leasing spreads of 1.8%. Sixty-five new leases were transacted during the first half of FY 2022, delivering a positive leasing spread of 1.4% and 154 renewals achieving a 1.9% positive leasing spread. Our retention rate increased from 80%- 88% as retailers continued to see the attraction of our centers and their dominant positions within their respective catchments. Specialty productivity was moderately impacted by mandated store closures and trading restrictions, but still remains strong at AUD 9,822 per sq m.
Similarly, occupancy costs remain sustainable at 11.5%, and when adjusted for COVID-19 rental support, the occupancy cost normalized to a very sustainable 10.8%. Our specialty tenant sales and customer traffic continued to rebound strongly and quickly as restrictions were eased. The portfolio's strong sales productivity, sustainable occupancy costs, positive leasing spreads, and high tenant retention demonstrates the ongoing defensive and resilient nature of CQR's income. Now turning to slide 20 and our asset enhancement projects. Charter Hall's focus on active asset management ensures we proactively invest in our centers and maintain their position as the dominant convenience centers within their respective catchments. We do this by investing alongside our major tenant customers and aligning our capital works with their store refurbishments that in turn helps to secure lease extensions and drives center MAT.
We also proactively unlock additional development opportunities on surplus land or where site coverage is low and adjacent usages can generate additional income. Our capital works program future-proofs our assets through sustainability and asset management initiatives that generate real benefits for our tenant customers, communities, and CQR unit holders. Now turning to slide 21, I'd like to talk through examples of this in more detail. In October 2020, we successfully converted a Target store at Dubbo Square in New South Wales to a Kmart tenancy. As part of the strategic asset enhancement, we invested AUD 2 million of capital into the center, upgrading shopper amenities, common areas, and installing a 500 kW solar system. Our capital investment was critical in securing a new 10-year lease with Kmart and mitigating a significant potential vacancy in the center.
Post-investment, we have seen a 13% increase in footfall, 21% increase in center MAT, and achieved an occupancy of 100%. At Campbellfield Plaza in Victoria, a center we acquired in 2019, we actively partnered with Coles, securing their commitment to undertake a full store refurbishment and enter into a new long-term lease. As part of this upgraded new lease, we invested in enhancing the center's ambience and amenities. With a total investment of AUD 2.6 million, we have achieved increased MAT, 100% occupancy, and a new 10-year lease to Coles. Finally, at Secret Harbour in Western Australia, we identified the opportunity to leverage the low site coverage and underutilized land to build a new childcare center.
Taking advantage of Charter Hall's cross-sector capabilities and relationships, we partnered with the social infrastructure team to access a leading national childcare provider and secure a new 15-year lease. In total, across these three assets, the investment of AUD 7.9 million assisted in driving substantial valuation growth and demonstrates how Charter Hall's active asset management results in significant value for CQR investors. Looking forward, I'm pleased to say we continue to see good opportunities to drive further growth in value and earnings for CQR unit holders through ongoing portfolio curation and active asset management, including further pad site opportunities. Now turning to slide 22 and our Target store conversion program. I'm pleased to announce today that following the completion of Target Rosebud's conversion to Dan Murphy's and Woolworths stores, we will have finalized our Target store conversion program.
Utilizing Charter Hall's strong tenant relationships, we've replaced eight Target stores with 10 high-quality tenant customers. In doing this, we have minimized downtime and mitigated lost rent. Additionally, the new leases we've entered into have resulted in a 17% uplift in rent received and a WALE of 8.5 years. As shown on the previous slide, and using Dubbo Square as an example, this tenant remixing has also delivered increased center MAT, footfall growth, and positive valuation outcomes across the portfolio. Now turning to slide 23 and our ESG highlights. Sustainability initiatives continue to be central to CQR's management and operations. We continue to make positive progress on our commitment to net zero by 2025. We now have 19.9 MW of solar installations commissioned across 40 centers, and we continue to partner with our major and specialty tenants to address Scope 3 emissions.
Our continued focus on NABERS energy and water ratings has seen the expansion of our NABERS footprint to 27 assets. Our ESG commitments also extend to recognizing the important role our centers play in their respective communities. Over the period, we continued to undertake a range of localized community initiatives and delivered on our Pledge 1% commitment. These initiatives support social value outcomes to build resilient, healthy, and happy communities. Finally, turning to slide 25 for our summary and outlook. CQR's strategy remains consistent and is focused on being the leading owner of property for convenience retailers to deliver a resilient and growing income stream for our investors. As I've outlined today, we continue to enhance the portfolio through curation and active asset management, and this is central to how we deliver growth.
Our expectation is that strong MAT growth, positive leasing spreads, and high occupancy levels will continue as market conditions normalize. We also expect our portfolio to benefit from direct and indirect inflation-linked rental growth, and that investor demand for CQR's high quality, non-discretionary, convenience-based assets will support further valuation growth. CQR's previous earnings guidance as at 1 December 2021 was for FY 2022 earnings per unit of no less than AUD 0.282 per unit and distributions per unit of no less than AUD 0.243 per unit. Today, I'm pleased to upgrade CQR's earnings guidance. Barring any further unforeseen events or a further deterioration in the COVID-19 environment, FY 2022 earnings per unit is expected to be no less than AUD 0.284 per unit, representing growth of no less than 3.9% on FY 2021 earnings per unit.
FY 2022 distributions per unit are expected to be no less than AUD 0.245 per unit, representing growth of no less than 4.5% on FY 2021 distributions per unit. That ends the forward presentation, and with that, I now invite questions.
Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes from the line of Lourens H. Pirenc with Jarden Group.
Yes, good morning. A question on the guidance. I mean, it's kind of flat half on half, and kind of flattish on the second half of 2021 as well. I just wanted to kind of see where the headwinds are against, you know, your acquisition of Ampol, the acquisitions you did in the previous 12 months, the COVID impact probably being less in the next six months. What am I forgetting here?
Yeah, thanks for the question. I think the best way to answer that, looking at half on half is that not everything's linear across a twelve-month period, but the most important thing to call out in the second half is that, as we mentioned in the portfolio guidance and highlights, we're converting our Rosebud Target store to Woolworths and Dan Murphy's during the second half. While that's gonna be a long-term positive outcome for the vehicle in respect of income growth and obviously adding attractive tenants, it does come with some downtime as we make that conversion roll through. That's the main impact.
Great. Can you just talk generally about the outlook for retail acquisitions?
Yeah, sure. Look, obviously you've seen, you know, highly competitive bidding on our high quality assets in the back half of the calendar year, and we expect that to continue going forward. The characteristics of, you know, high quality covenant tenants, convenience retailers, which have got high exposure towards inflation-linked growth, is gonna be something that's gonna continue. Whilst we haven't got anything planned from an acquisition perspective at this point in time, you know, we remain optimistic about the performance of the sector through the second half of the year.
Thank you.
Thank you. Our next question comes from the line of Mollie Urquhart with Barrenjoey.
Hi, Ben, Christine. Just one from me on the supermarket. The percentage in turnover has come back a bit since June, and today you mentioned that you've converted some of that turnover rent into base rent. Is there a performance component to this number coming off as well?
No, not at all. Thanks, Mollie, for the question. What we've seen, as you quickly pointed out, is we've had 19 supermarket leases over the last couple of years go through a base rent review mechanism. We've obviously been able to achieve that during quite a high water mark in terms of, you know, sales for supermarkets, which has achieved an AUD 1.9 million increase in base rent. Along with that increase in base rent, obviously there's a reset of thresholds. You know, some of the supermarkets will then sort of come back down towards a break-even point. As supermarket sales continue to increase, we expect that number to come back up to the normalized levels we talked about previously.
Great. Thanks. Maybe just following on that, in light of, you know, Woolies coming out today and saying prices were up over the half and that inflation will likely drive prices forward more, do you have a view of where this number would go over, you know, the next 6-12 months?
It's hard to predict. Obviously we've been in a pretty rocky period all the way through, but, you know, what we've seen in the first couple of months of this year has been continued sales growth among our supermarkets and essential retailers. You know, we expect that to be strong and continue the strong momentum that has been delivered throughout FY 2022 for us.
Great. Then just one last one actually, on the rent relief over the quarter. The total is up at the end of March. Can you give us a number as to what you've paid out so far for the third quarter?
We forecast for the third quarter we'll be delivering between AUD 1 million and AUD 1.5 million of tenant support. We are well progressed, but obviously, that's the number that we're looking to for the end of the quarter in March.
Thanks, Christine. Thanks, Ben.
Thank you. Our next question comes from the line of Stuart McLean with Macquarie.
Good morning. Thanks for your time. Just had a question in regards to uses of capital and saying that acquisition market is quite hot at the moment. Your own share price is trading at a material discount to NTA. Is that a potential option for capital?
Thanks, Stuart. Look, you know, obviously when you are trading at a discount to NTA, it does make raising capital difficult. You know, we'll continue to look at the quality of our portfolio and the curation that's been undertaken previously has included measures being recycling of, you know, our lower growth assets into higher growth properties and accessing the ability of the Charter Hall Capital Transactions team to, you know, secure off-market transactions. Equally, we have got some available liquidity within the vehicle now to look at accretive acquisitions to the portfolio. We'll utilize all those measures.
Yeah. Is that more in terms of a potential capital deployment opportunity in terms of buying back your own stock at a significant discount to NTA as opposed to competing in what's quite a tight transaction market?
Look, buybacks are a capital management measure that have been enacted upon and considered by the CQR board in the past. You're correct. While you are trading at a discount to NTA, it's a measure that the CQR board will consider at an appropriate time, but nothing is planned at this point in time.
Why is now not the appropriate time?
Look, it's a matter to be discussed, you know, with the board, as we work through and hopefully the positive earnings guidance we've delivered and continue to grow our earnings going forward will help to drive the share price up.
There's no reason being provided why a buyback is not best use of capital.
It'll be something that'll be considered by the board at the appropriate time.
What is an appropriate time? Like, what would you say are the kind of bars that need to be hit in order for there to be an appropriate time?
Look, Stuart, i t's hard to answer. We'll look at it over a long period of time. We'll make an appropriate assessment with the board as we get through the results and see how the performance of the share price moves.
Okay, thank you. Second question is just around occupancy costs. I think it was mentioned that they fell to around 10.8% once the centers were open and trading more fully. What do you think is a sustainable op cost going forward?
Look, you know, 10.8% is incredibly sustainable, and you've seen by the positive leasing spreads, which they've delivered year-on-year. For as long as I can remember, they've delivered positive leasing spreads. It goes to show that they are sustainable and they are growable. You know, we look at anything in that sort of 11%-12% very sustainable for this vehicle and as sales grow, so can rents.
Great. Thank you very much.
Thank you. Our next question comes from the line of Alex Prineas with Morningstar.
Thank you. Just a quick question on the turnover rents. Thanks for the information that you've already provided. Is a base rent review really the only sort of reason that a supermarket would come off of a turnover arrangement? Like once they're locked into that, they're typically locked in. Is that right?
Yeah. The base rent review mechanism locks in AUD 1.9 million we talked about as permanent base rent. That can't be changed. To answer your question directly, there might be some circumstances where supermarkets are impacted by competition or, you know, there's a period of time where they go through refurbishment and they have to shut down for or slow down their sale momentum, but that generally picks up. There are very few circumstances other than those, under which supermarket sales will be impacted.
Thanks. Okay. Can you just sort of compare and contrast the service station rental arrangements? It looks like a lot of the service station rental arrangements are more kind of CPI-focused. Is that presumably just a preference from the service station landlord? Is there sort of potential for different, more turnover-based arrangements on service station properties? Is it the CPI-linked model the more prevalent one there and likely to remain the case?
Look, our leases are locked in with the service stations. They're incredibly long WALE triple net leases with CPI inflation-linked increases, so they are locked and loaded going forward.
Yep. In terms of sort of other transactions or sort of assets that you might have looked around on the market, is that typically the way service stations are set up in terms of sale and leaseback? Or, yeah, are you able to comment on that at all?
Yeah. There's an incredibly huge volume of individual service stations that get transacted every year, which gives great valuation evidence for the valuers and great line of sight for us in respect to where the broader investment market sees them from a value perspective. You know, from our perspective, what we've been able to do is once again access Charter Hall's leading sale and leaseback, you know, activity to access off-market transactions with BP and now with Ampol to be able to drive growth for CQR unit holders through those, you know, attractive opportunities.
Okay, thanks.
Thank you. As a reminder, ladies and gentlemen, to ask a question, you will need to press star one on your telephone. Once again, if you have a question, please press star one. We have a question from the line of Peter Davidson with Pendal.
Hey, how you going Ben and Christine? Just a query on those servo CPI resets. When do they actually reset? What reading do they take? And what-
Sorry, Pete. Look, most of our service station CPI reviews have occurred in the first half of the year, because both the transactions of the BP Australia and BP New Zealand occurred in December, so they've been locked and loaded. Obviously, when Ampol settles in Q3, that will be the start at which we'll start comping out CPI reviews going forward.
Okay. It's just the annual number, yeah? The annual CPI resets once a year, yeah?
Correct.
Yeah. Yep. It doesn't bump every quarter, for instance.
No, no, it's an annual CPI number, Pete.
Okay. Good. Just also clarifying, Click and Collect, which is sort of a background strategic issue for the supers. Can you just confirm that, for your supermarket portfolio of 71, how many collect rent on Click and Collect sales?
You know, we've been very active in partnering with Coles and Woolworths in respect of online sales. Online sales contribute to our turnover rent in all of our supermarket leases. You know, pleasingly, as we've been able to work with them to increase our coverage of direct-to-boot Click and Collect, we're up to 95% coverage across our portfolio now from that perspective. What we've seen through research we've undertaken and just pure store sales is by offering those additional services and providing omni-channel opportunities for our client and customers, the actual catchment of our shopping centers have increased, sales have increased, and we actually generate higher sales by people coming from outside the catchment into the physical shopping center itself. It's a really positive impact for the portfolio.
Okay, good. I'll call your attention to slide 40, which is an interesting one. It looks like a pretty good report card. You mentioned there 10.8% is your op cost on a sort of, if you reset for COVID, so if sales were restored to where they were, so that's pretty good. Is there any headroom in that 10.8%? I mean, if you cast your eye along the bottom line there, you can see you do get into the 11% sometimes, 11.8%. Is there headroom? Is there any degree of sort of under-rentedness, in your spec rents? I know, for instance, that you've had positive leasing spreads. Actually, you've got a very good report card there. It looks like it's all positive. Is there any headroom for rent growth there?
Thanks, Pete. So definitely the answer is yes. You've seen, as you correctly pointed out, that while the occupancy costs have crept up, we have had an impact of, you know, mandated store closures during the COVID-19 pandemic and some shadow lockdowns, but we maintain a very healthy percentage going forward. You know, positive leasing spreads, once again, we've been able to achieve this year. I think, you know, for as long as I can remember, CQR has continually posted positive leasing spreads, which goes to show the quality of the portfolio. Probably the final point I'd add on that is, you know, under the portfolio curation strategy undertaken by CQR over the last couple of years has effectively worked through moving on lower growth, you know, opportunity type assets and reinvest into higher quality properties.
With those higher quality properties come higher quality sales and the ability for us to continue to grow our rent. We do see headroom in our ability to continue growing rent going forward.
Okay. Thank you.
Thank you. I'm showing no further questions at this time. With that, I'll turn the call back over to Ben Ellis for any closing remarks.
Thank you all for joining in today. I look forward to catching up with many of you in one-on-ones and discussions in the near future. Enjoy the rest of your day. Thank you.