In Finance by Clyde Mooney

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Charter Hall’s pub REIT has stepped up expansion plans, retiring bank debt in favour of a A$200 million US Private Placement note as it chases “sustainable and growing returns” for its investors.

The Long WALE Investment Partnership (LWIP), 45 per cent owned by the Charter Hall Long WALE REIT (Real Estate Investment Trust), Charter Hall and Hostplus, holds title to 54 pub assets around Australia, leased to ALH Group for an average (at 31 March, 2017) of 17.5 years.

It was formed in late 2014, with Charter Hall and Hostplus each fronting $150m ahead of a $600m IPO. This was furthered mid-2015, with another $200m raised to buy more blue-chip freeholds.

In December, LWIP announced the $65.9m ‘sale and lease-back’ acquisition of the SUEZ portfolio, comprising 10 sites in Queensland, NSW, Victorian and WA, occupied by the industry-leading waste recycling company.

The SUEZ portfolio boasts WALE (Weighted Average Lease Expiry) of 15.0 years and a cap rate of 6.0 per cent, and the acquisition was funded through LWIP’s undrawn debt capacity, recently welcoming NAB as part of the syndicated debt facility.

Now, LWIP’s inaugural US Private Placement (USPP) offers the managed entity “long-term through-cycle debt funding security” via an alternative source of liquidity outside the traditional bank market. It comes at an all-in cost of debt of 5.0 per cent.

Although the USPP lifts the weighted average cost of debt from 3.8 to 4.0 per cent, earnings are expected to remain above forecasts, due to the successful SUEZ acquisition.

LWIP now shows WALE of 12.2 years, up from 12.0 (at 31 December, 2016), and assets of $1.32 billion. Parent company Charter Hall boasts funds under management of more than $19 billion.

In the ASX release for the Long WALE REIT (CLW), fund manager Avi Anger spoke of the success of ‘business as usual’ in the fund.

“The REIT continues to focus on actively managing the portfolio, acquiring assets with long leases to high quality tenants and implementing prudent capital management initiatives, which will create value and deliver sustainable and growing returns for investors.

“The REIT also achieved a significant milestone with its recent inclusion in the S&P/ASX 300 Index.”