Greg Chubb CEO, Charter Hall Retail

nded to community needs in these projects – and many other local initiatives in communities where we have centres – has been exceptional. Our support of Two Good’s ‘Delivering Good’ program involved our team, tenant customers and shoppers engaging with us on the topic of domestic violence and supporting a national campaign across 23 of our shopping centres. Our team donated more than 2,000 hours volunteering to support the initiative. The funding supported women through The Two Good Co work program. The importance of this program is something that our team feels very strongly about. For Dam Good, many of our shopping centres in drought affected areas raised funding for drought relief, dollar matched by Charter Hall, to achieve close to $200,000.  The funds were donated to Rural Aid and provided 27 truckloads of hay and 50 truckloads of water across 20 drought affected rural communities. A number of our team members had the opportunity to travel to these areas and meet the farmers and their families. I am really proud of how our team are deeply connected to our communities and continue to actively drive our ‘give back’ commitment. The second aspect of our business I am most proud of is how we have managed our portfolio structure. Through active management, strong tenant customer partnerships, active portfolio curation and proactive and strategic leasing, we have achieved a portfolio structure that is focused on everyday needs and convenience-based retail. So how are these connected?  I am certain that without the first, the second would not have achieved the success that it has. If we did not have outstanding work being done in the 56 communities that we serve through our shopping centre portfolio, we would not be the leading owner and manager of convenience-based retail.   The connection lies in the passion and quality of our people; our desire to do our best, our ability to find creative solutions and our deep knowledge of our market.  We are immersed in our communities and we deeply understand the market drivers that inform decisions on our portfolio structure. We start the new year from a strong position. Our focus on convenience-based retail has been rewarded and at the end of 2019, our listed fund, Charter Hall Retail REIT (ASX: CQR) posted updated earnings guidance for FY20 to grow by 2.3% over FY19. We posted positive increases on all operational performance metrics with our shopping centre portfolio of convenience-based retail assets remaining above the comparative Urbis industry benchmarks. Expand the market Convenience comes in different shapes and sizes. In our portfolio, approximately half our assets by value are traditional neighbourhood convenience-based retail centres with a focus on non-discretionary every day needs. We have been stratifying the concept of convenience by expanding into bigger catchment areas with the opportunity to have multiple supermarkets in one centre, but still with a clear focus on convenience and non-discretionary retail.  These are our ‘convenience plus’ assets and make up the other half of our convenience retail platform. More recently, our listed retail fund, CQR acquired an interest in a managed fund alongside BP. The portfolio consists of the majority of BP’s owned and operated convenience retail sites across 225 properties in Australia. The portfolio features a WALE of 20 years, with staggered lease expiries from 18 to 22 years and triple-net structure with annual CPI increases. The customer remains king Core to our success are our tenant customers and shoppers.  Listening to their views is arguably the best market intelligence we resource. We engage daily with our tenant customers and each year we do a portfolio wide pulse check (Net Promoter Score metrics) to gain formal feedback on where we are winning and where we can get better. Pleasingly, our customers identify our people and the way we engage as our greatest strength, reflecting our mission to be close to our customers and our broader shopping centre communities. Our long-term relationships with Woolworths, Coles, Wesfarmers and ALDI, which contributes nearly 50% of our rental income and over $3.5 billion in sales annually across our shopping centre portfolio, provides high quality predictable cashflows and is behind our strategy to be the leading owner and manager of convenience-based retail. Focus on the sweet spot Our sustained high performance has been achieved by doing what we know and continuing to do it better. Our sweet spot remains a convenience focused portfolio of non-discretionary retail assets that provides stable, predictable, reliable, income for our investors. We see ourselves as being the custodians of their investment that is entrusted to us, whether they are large capital partners and institutions or individual shareholders, and we’re focussed on a portfolio that is resilient, robust and relevant. Our commitment to non-discretionary retail is steadfast and, as a result, we have significantly less discretionary floor space than the industry benchmark. Game-changing trends Two of the most impactful changes in the retail sector in the last decade have been the disruption caused by online shopping and the sector-wide approach to sustainability. We have adapted quickly to these evolving expectations. Our non-discretionary focus has certainly minimised the impact on our shopping centres and we know the communities in which we operate enjoy the local connection and experience that our centres offer. That being said, we know that needs are evolving and options to shop how you want, when you want, is important. During the past 12 months we have partnered with our tenant customers, Coles and Woolworths, to deliver click-and-collect services for shoppers across 24 centres and expect this to grow to 50 click and collect facilities by the end of the year. As part of this service, we have always ensured our carparks enable easy and quick access for shoppers. On sustainability The property sector is focused on climate change mitigation and Charter Hall is committed to climate change adaptation planning and to providing a more sustainable environment in our centres. This involves in part; climate change adaption plans in all our retail assets, investing in renewable technologies, reducing our emissions footprint, improving building efficiency, conserving water and reducing waste. Last year, we completed an investigation into implementing a renewable energy solution across our entire retail portfolio and, notably we entered into Power Purchase Agreements (PPAs) to deliver our solar roll-out program.  Progress on this strategy continues with nine of the initial 14 assets now completed and we recently announced a further 13 assets have been added to the program. For our listed fund CQR, this will deliver 35% of the portfolio’s energy needs. Additionally, 8.3MWh batteries are currently being constructed for installation at an initial four assets to reduce grid demand costs and support CQR’s change adaption plan. This has seen a reduction of our retail portfolio energy emissions by 25% and has also secured price certainty for the operation of our centres at a lower cost than the prevailing electricity market. Our target is to achieve a 100% reduction in our emissions by 2030. New markets Our emphasis towards non-discretionary, convenience-based retail across the broader Charter Hall business is demonstrated by the recent investment alongside BP in its portfolio of 225 sites Australia and our relationship with Bunnings, where we have invested more than $1.2 billion into high quality locations on long leases to Bunnings. Charter Hall is now the second biggest owner of Bunnings assets in Australia. Charter Hall now also has a presence in social infrastructure assets with the acquisition in 2018 of the listed Folkstone Education Trust (ASX: FET) which had more than 400 childcare assets. Through the acquisition of that business, now known as Charter Hall Social Infrastructure REIT (ASX: CQE), we’ve gained deep understanding of the childcare market and the opportunities to incorporate childcare into certain shopping centres. We are in the process of rolling out the first two of potentially many childcare facilities in our shopping centres. This again demonstrates our commitment to convenience and evolving how we allocate space within our centres to further meet the needs of the communities in which we operate. The future The future outlook for Charter Hall’s retail business is positive. We are proud of where we are at, the decisions we have made and our team. We have grown with our tenant customers across the retail sector. Our early reading of market shifts and resultant portfolio composition work – divesting and acquiring assets and positioning our portfolio to the market – brings resilience to our performance story.  We have not wavered in our focus on our relationships with our tenant customers and broader communities and our commitment to deliver strong, predictable, sustainable returns for our investors. When, in another 12 months, I reflect on what I am most proud of at Charter Hall, I suspect my answer will be the same. Everything we do, every success we have, comes back to our people. Our people working in our shopping centres, volunteering in our communities, communicating with our customers, managing our front and back office, and managing our portfolio structure, are connected by their contribution to our business and the passion to do great things. This year, we will maintain our strategy. Our exploration of new business opportunities that complement our focus on non-discretionary retail will continue. In a sense, we personify the adage – the more things change, the more they stay the same. About Charter Hall Charter Hall Group (ASX:CHC) is one of Australia’s leading fully integrated property groups. With more than 29 years’ experience in property investment and funds management, we use our property expertise to access, deploy, manage and invest equity across our core sectors – office, retail, industrial and social infrastructure. Charter Hall Group has curated a $38.9 billion diverse portfolio of more than 1,100 high quality, long leased properties.