Board of Directors, it's my pleasure to welcome you all to the 2026 Annual General Meeting of Charter Hall Retail REIT. My name is Roger Davis, and I'm the Independent Chair of the Charter Hall Retail REIT Board of Directors. It's now the appointed time, 2:00 P.M., and as the necessary quorum is present, I declare this meeting properly constituted and open. Today's meeting will comprise my address, followed by an address from Ben Ellis, Retail CEO and CQR Fund Manager, seated on my right. We will then take questions before proceeding to the formal items of business. I would like to commence today's presentation with an acknowledgment of country. Charter Hall acknowledges the traditional custodians of the lands on which we work and gather. We pay our respects to elders past and present, and recognize their continued care and contribution to country.
I would now like to introduce my fellow board members. Michael Gorman, Independent Director and a member of the Audit, Risk and Compliance Committee. Sue Palmer, Independent Director and Chair of the Audit, Risk, and Compliance Committee. Paul Craig, Independent Director. Kate Melrose, Independent Director, who joins the board this year, and you'll hear more from her shortly. Ben Ellis, Retail CEO and CQR Fund Manager, and David Harrison, Charter Hall Managing Director and Group CEO, who unfortunately is an apology for today's meeting. Also present today and whom I welcome are Joanne Donovan, our Head of Retail Finance, Mark Bryant and Rebekah Hourigan, our Company Secretaries. Our external auditor, EY, is also present and will be available to answer questions from unitholders regarding the audit of the financial statements. Today I'm especially pleased to welcome Kate Melrose as a new Independent Director of CQR.
Kate brings extensive experience across the commercial real estate industry, and we look forward to her contribution to CQR's future. Today, we also farewell Independent Director Michael Gorman. Over the past decade, Michael has brought invaluable insight and experience to the board and contributed to many important decisions. We sincerely thank him for his service and wish him every success for the future. Thank you, Michael. CQR's strategy is to be the leading owner of convenience retail property and to deliver sector-leading property income and earnings growth over the long term. The portfolio delivered another strong operating result in FY 2026, supported by the defensive characteristics of convenience retail and the quality of our tenant customers. The value of CQR's property investments increased to approximately AUD 5.2 billion, while portfolio occupancy rose to 99.1%.
Same property net property income grew by 3%, comprising 3% growth in the shopping center portfolio and 3% growth in the net lease portfolio. Operating earnings were AUD 0.264 per unit, an increase of 4% on FY 2025 and in line with upgraded guidance. The board has provided FY 2027 operating earnings guidance of no less than AUD 0.273, representing earnings growth of at least 3.5%. CQR's net tangible assets increased by 8.4% to AUD 5.03 per unit, contributing to a 12-month levered portfolio return of 15.8%. Pro forma balance sheet gearing was 30.9% following the debt refinancing. CQR's debt margin reduced by 40 basis points - 125 basis points with a weighted average cost of debt of 5%. These outcomes reflect the value created through sustained portfolio curation, disciplined capital management, and strong property performance.
Clearly, inflation's been an issue in our economy. I highlight that CQR's transition to close to 50% in net lease real estate with inflation-linked retail increases, combined with our own strong exposure to supermarket food sales, annual growth rental mechanisms provides a strong inflation hedge option for investors. Ben will discuss the financial and operating highlights in more detail in his address. Turning now to sustainability achievements, CQR operated at net zero scope 1 and 2 emissions from 1 July 2025 for assets owned by the REIT and under Charter Hall's operational control. This was achieved through on-site solar generation, renewable electricity procured under a power purchase agreement, and nature-based offsets for residual emissions. We now have 19.5 MW of solar installed across 76% of our shopping centers with suitable roof space. Battery capacity increased by 4.1 MW hours during FY 2026 to 15.4 MW hours across eight sites.
In the same time, the shopping center portfolio maintained a five-star NABERS energy rating and achieved a 4.1-star NABERS water rating, an improvement of 0.2 stars on FY 2025. We maintained second place amongst listed retail entities in Australia and New Zealand in the 2025 GRESB assessment to get an A rating under GRESB Public Disclosure. Our sustainability approach also extends to community impact. During the year, AUD 595,000 was spent with Two Good Co on shopper engagement initiatives supporting more than 850 hours of Charter Hall volunteering and funding more than 1,000 little care packs for children in need. The Drawing Us Together campaign was delivered across 17 centers, engaged more than 1,100 students with stories from 13 First Nations authors, and received the Shopping Centre Council of Australia Community Award. Good governance remains central to the board's responsibilities.
The board has a majority of independent directors, remains focused on transparency, disclosure, and acting in the best interests of all unit holders. In Ben's presentation today, you will hear about the strong value creation generated from our investments in the Ampol and BP transactions, in addition to the acquisition of HPI, which could not have been secured without the wider Charter Hall Group assistance. I'd like to acknowledge Charter Hall Group's management of the REIT and the breadth of capability it provides across investment, transactions, asset and property management, development, finance, legal, and treasury services. Finally, I'd like to thank you, our unit holders, for your continued support and investment in CQR. We're not pleased with where CQR is currently trading relative to its NTA per unit, but rest assured your board remains focused on identifying opportunities to continue to enhance earnings growth and reduce this discount over time.
I'll now hand over to Ben Ellis to review the year's financial and operating performance and discuss the outlook for 2027.
Thank you, Roger. CQR's strategy is focused on delivering the highest property income and earnings growth from the convenience retail sector. We invest in non-discretionary retail that is resilient through economic cycles, in strategic locations with high visibility, convenient access, and low site coverage, with high tenant covenant quality and long-term tenant. The portfolio benefits from diverse rent review structures and CapEx and outgoings efficient net leases. Our strategy is delivered through continued portfolio curation, active asset management, and prudent capital management, supported by Charter Hall's position as Australia's largest convenience retail platform. CQR is supported by Charter Hall's fully integrated retail platform, which provides a nationwide end-to-end service offering. The platform has approximately AUD 18 billion of assets under management, more than 900 convenience retail properties, and over 169 retail specialists across all convenience retail management functions and all states in which we operate.
This scale provides access to specialist capability, market intelligence, and tenant relationships that are not available to any other convenience retail platform. At 30 June 2026, CQR owned a AUD 5.3 billion diversified convenience retail portfolio comprising AUD 2.5 billion of shopping centers and AUD 2.8 billion of net leased convenience retail assets. On an income basis, the portfolio was broadly balanced with 51% of income derived from shopping centers and 49% from net leased retail. Portfolio occupancy increased to 99.1%, with tenant arrears remaining at a record low of less than half of 1%. The portfolio weighted average lease expiry increased to 7.1 years, with an anchor tenant WALE of 8.9 years. The portfolio comprises of 730 assets at the year-end, up from 699 properties at 30 June 2025. The weighted average capitalization rate tightened 16 basis points on a like-for-like basis to 5.45%, reflecting our strong income growth.
The portfolio is geographically diversified across Australia and New Zealand, and equally by segment across shopping centers, energy and convenience, hospitality, and Bunnings assets. The portfolio has been deliberately curated to improve income resilience, tenant covenant quality, and earnings growth. In FY 2015, CQR was entirely invested in shopping centers. By FY 2026, the portfolio had grown to approximately AUD 5.3 billion and was broadly balanced between shopping centers and net leased retail assets. This strategic shift has diversified CQR's exposure across major anchor tenants and rent review mechanisms while increasing the contribution from long WALE, capital-efficient net lease assets. CQR has now reached its target portfolio mix of approximately 50% shopping centers and 50% net leased convenience retail.
CQR has leveraged Charter Hall's scale and market relationships to access both on-market and off-market net lease opportunities, including the take private of HPI and the sale and leaseback of the BP and Ampol portfolios across Australia and New Zealand. CQR's targeted shift towards net leased retail has improved the quality and resilience of the portfolio income while materially reducing CapEx requirements. Across these investments, CQR has deployed AUD 907 million of equity, which has increased in value to AUD 1.2 billion as at 30 June 2026. This represents AUD 317 million of value created at an average uplift of 35% and an average equity IRR of 18%. The portfolio remains strongly weighted towards non-discretionary categories that support resilient cash flows through economic cycles. CQR's targeted shift towards net leased retail has improved the quality and resilience of portfolio income growth while materially reducing capital requirements.
Shopping center majors, energy and convenience, hospitality, and food-related user groups represent the largest income categories. Our top tenant customer groups include BP, Ampol, AVC, Woolworths, Coles, Bunnings, and Kmart. Over the five years to FY 2019, the shopping center portfolio delivered average net property income growth of just 1.9%, with capital expenditure averaging AUD 75 million or 2.8% of portfolio value per annum. Today in FY 2026, both the shopping center and net lease portfolios have delivered an increased net property income growth of 3%. Shopping center capital expenditure has reduced to AUD 28 million, while the net lease portfolio requires no capital expenditure whatsoever. The top 10 tenant customer groups represent 61% of portfolio rent, providing significant exposure to established national and international operators.
These outcomes demonstrate the benefit of combining higher income growth with a strategic shift towards assets benefiting from capital-efficient net lease structures underpinned by high underlying land value, inflation-linked rental growth, and that has supported both income and NTA growth. CQR enters FY 2027 with a portfolio curated to its target mix of approximately 50% shopping centers and 50% net lease convenience retail. The outlook is supported by Australian population growth, limited new retail supply, strong tenant demand, and continued opportunities to enhance portfolio quality through curation and active asset management. Based on information currently available, and barring any unforeseen events, CQR's FY 2027 operating earnings guidance is reiterated at not less than AUD 0.273 per unit, representing growth of at least 3.5% over FY 2026. Equally, FY 2027 distributions guidance is reiterated at not less than AUD 0.264 per unit, also representing growth of at least 3.5%.
Based on CQR's closing security price of AUD 3.61 on the 28th of October 2026, this equates to a distribution yield of 7.3%. Our focus remains on delivering income and NTA growth through disciplined portfolio management, capital efficiency, tenant retention, and strategic partnerships. I highlight that CQR is entirely focused on convenience retail. Our portfolio provides the goods and services Australians rely on every day. We've been managing these assets for a long time, and over that period, we've seen the resilience of the sector play out consistently. We now have a 25-year track record of shopping center performance driving consistent positive leasing spreads each year, regardless of economic cycles, periods of high and low inflation, and changing consumer environments. The reason is simple. The first dollar from every household budget goes towards the essentials. First, your rent or your mortgage, and then food or groceries for your family.
Discretionary spending comes later. That's why food retailing has consistently been one of the most stable and steady growing components of Australian retail sales. It serves everyday needs that don't disappear when economic conditions become more challenging. As a result, convenience retail remains one of the most resilient formats in the Australian retail property sector, benefiting from non-discretionary spending, high-frequency visitation, and long-term rental growth. I'd like to thank our people who manage the portfolio each day and who continue to partner and support with our tenant customers, communities, and each other. Finally, on behalf of the board and management team, thank you to our unitholders for your ongoing support of CQR. I'll now hand back to Roger to conduct the formal business of the meeting.
Thank you, Ben. I'll now pause to ask whether there are any questions from unitholders here today. Okay. I'd now like to address any questions submitted before the meeting. Ben, any questions?
Yes, we've received one question submitted through MUFG Investor Centre.
The question was, given the impact of high interest rates on the price of units on the stock market and the return per unit, will the board look after unitholders' interests and lower the leverage of the fund to help boost valuations? Well, thank you for that question. It's a very timely and appropriate question. As I mentioned earlier, the board's certainly not pleased with where we're trading relative to the NTA price per unit, which reflects higher bond yields. However, we're very pleased with the underlying performance of the portfolio. As Ben said, convenience retail is one of the most resilient asset classes in Australian property, supported by non-discretionary consumer spending, low Capital Expenditure, and strong income growth from diverse rent review structures. We also have strong tenant covenant exposure with its top 10 tenants, including Coles, Woolworths, Ampol, BP, and Bunnings, accounting for 61% of income.
We'll continue to look for opportunities to divest lower growth, non-core assets and reduce leverage without impacting earnings growth for unitholders. We remain very confident in CQR's future NTA and earnings growth. I'll now proceed to the formal business of the meeting. If there are any unitholders who are eligible to vote who have not received their yellow voting cards, please see a representative from the registry, MUFG, at the registration desk. Unitholders holding a yellow card, you are eligible to vote and speak at the meeting. If you have a blue card, you're not eligible to vote, but you can speak. If you have a red card, you're not eligible to vote or speak at the meeting. To begin, I table the notice of meeting dated October 2, 2026, which contains the resolution for consideration today.
Copies of the notice of the meeting and the annual report were made available to unitholders by post or email and are available on CQR's website. Copies are also available at the registration desk. I will take the notice of meeting as read. Resolution one, the election of Independent Director Kate Melrose. The item for consideration today is the election of Independent Director Kate Melrose, which will be decided by poll. Before I open the poll, I would like to ask Kate to say a few words about her background and experience for the benefit of unitholders. As explained in the notice of meeting, only the shareholder of Charter Hall Retail Management Limited, being the Charter Hall Group, may appoint a director. Accordingly, today's resolution is advisory and non-binding. But notwithstanding this, directors will give due consideration to the result of this resolution. Kate, say a few words.
Thank you, Roger, and good afternoon to my fellow directors, the Charter Hall team, and unitholders. It is a privilege to stand for election today to join the CQR board. I have spent some 30 years in property across three ASX-listed entities and a number of private organizations. My background originally was in valuation, property economics, and real estate transactions, and I have worked across development strategy, deep customer research, and innovation. My focus has been creating places that people aspire to belong to or visit, and portfolios that capital aspires to own. Much of my career has been spent on real estate fundamentals, choosing the right location, understanding markets, demographic and customer behavior shifts, and investing capital carefully and executing well. At Lendlease, I held global and national roles.
I created large-scale urban communities that integrated both residential, retail convenience, social infrastructure, facilities, and lifestyle offerings, with a strong focus on risk management. I spent 11 years with Ingenia, an ASX-listed fund. I helped grow the Ingenia business from the inception of a new institutional asset class to AUD 2 billion, building sales and annuity revenue, a portfolio of recurring rental income, and a substantial development pipeline, today a contested one. Since 2019, I have served as non-executive director. I sit on boards of Evolve Housing and CQE. So I understand Charter Hall's platform well and how important it is that independent directors keep unitholders' interests front of mind. Turning to CQR, I would like to acknowledge the board, Ben, the Charter Hall team for delivering on CQR's strategy, transforming the fund into a diversified convenience retail business.
My contribution will be practical, commercial perspective, a focus on risk management, along with a curiosity and an independent judgment. Good boards work when directors and management bring different perspectives and challenge one another constructively. That is the spirit in which I intend to contribute, asking thoughtful questions and valuing clear accountability. I look forward to working with Roger, my fellow directors, Ben, and the Charter Hall team. Thank you for considering the election.
Well, thank you, Kate. As I hope you've heard, an outstanding candidate for the board. I hope you do elect her. Today we had our first meeting with her. Weren't disappointed. She was terrific. I now declare the poll open and ask all unitholders to cast their vote for or against the resolution by marking the relevant box on their voting card. A representative of the registry will collect your voting cards. This is an ordinary resolution, and as you can see, it's displayed on the screen. I'll now display the proxy votes received on the screen. Think you're looking good there, Kate. If you've not already done so, mark your voting card, hand it to the representative, and the final result of the resolution will not be known until after the conclusion of the meeting.
The result of the poll will be released to the ASX and displayed on the website later today, but I think you can take it as read that Kate's looking like a short odds to get up. Okay. As there is no other business to be considered, I now declare the formal business of the meeting closed. Thank you for your attendance today and for your ongoing support of CQR. Please join us for light refreshments outside in the breakout area. Thank you very much.