Charter Hall Retail REIT (CQR) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Charter Hall Retail REIT 2023 Full Year Results Briefing. [Operator Instructions] Please note that this conference is being recorded today, Tuesday, the 15th of August 2023. I would now like to hand the conference over to your host today, Mr. Ben Ellis, Retail CEO. Thank you. Sir, please go ahead.

Good morning, and welcome to the Charter Hall Retail REIT FY '23 Full Year Results. My name is Ben Ellis, and I'm the retail CEO for Charter Hall and an Executive Director of CQR. Joining me this morning is Joanne Donovan, Head of Retail Finance at Charter Hall. I'd 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. Now turning to Slide 5 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 1.1% to $0.2871 for the period and distributions per unit were up 5.3% to $0.2580 compared to FY '22. For the period, we completed 420 leasing transactions and again achieved positive leasing spreads of 2.5%, demonstrating the strong trading of our convenience retail centers. This continued strong leasing activity translated into portfolio occupancy increasing to 98.6%, up from 98.5% in FY '22. Same property NPI growth remained strong at 3.3% driven by a unique blend of inflation-linked rental growth from our convenience Long WALE retail assets and turnover rent from our supermarkets within our shopping center portfolio, complemented by fixed rental increases from our specialty tenants. MAT growth across the shopping center portfolio was strong. Total MAT growth of 5.9% was up significantly from 0.4% in FY '22. As you will see later in the presentation, this strong portfolio MAT growth was driven from supermarket growth for the period being up 4.3% and exceptionally strong specialty MAT growth of 9%, up from minus 3.7% in FY '22. This has resulted in an all-time high specialty sales productivity per square meter of $10,489 a square meter, up from $9,894 in FY '22. These strong operating metrics and increased exposure to high-quality triple net lease Long WALE convenience retail assets benefiting from annual CPI rental escalations again demonstrates the strength of CQR's strategy and our ability to deliver ongoing and resilient income growth for investors. Looking forward, we expect to see continued demand for convenience and Long WALE retail assets as investors continue to see the value associated with their resilient income streams and inflation-linked rental growth as characterized in the CQR portfolio. Turning to Slide 6 and the REIT strategy. CQR's strategy is to be the leading owner of convenience retail property. We achieve this by enhancing the portfolio quality through curation of assets we own; active asset management to drive strong rental growth; utilization of low site coverage, allowing for expansion and redevelopment opportunities in our shopping center portfolio; and prudent capital management. The income growth created for CQR from judicious Long WALE acquisitions in recent years has generated capital growth whilst also adding a large and growing component of CPI-linked rental growth to the portfolio, complementing the indirect inflation-linked rental growth for our major supermarket leases and the fixed specialty rental escalations from our shopping center portfolio. This strategy continues to deliver a high-quality, resilient and growing income stream for our investors. Slide 7 outlines how we've executed against our strategy and details the increased earnings growth it has delivered. Since 2018, we've been actively curating our convenience retail portfolio and growing our major tenant customer composition. In 2018, CQR had 4 leading convenience retailers: Woolworths, Coles Group, Wesfarmers and Aldi, representing 48% of the REIT's total portfolio rental income, with less than 3% of major tenant leases benefiting from annual CPI-linked rent reviews and there were no triple net leases within the fund. Although the percentage of supermarkets in turnover was a market-leading 53% at the time, the rental growth delivered by major tenant customers was modest. By contrast, and through active curation of our portfolio, CQR's portfolio and major tenant rental growth profile now looks significantly different. CQR now consists of a high-quality, predominantly metropolitan convenience shopping center portfolio, complemented by a portfolio of triple net leased convenience Long WALE retail assets benefiting from CPI-linked rental reviews. With the addition of the Ampol, bp, Gull and Endeavour Group portfolios, the fund now has 8 major tenant customers that deliver 57% of total portfolio income, significantly improving the quality and resilience of our income growth. For FY '23, these 8 major tenants also delivered 3.7% income growth, over 3x what the portfolio delivered prior to the curation, and importantly, over 35% of this income now comes from triple net leases that deliver true and consistent inflation-linked rental growth with no CapEx drag. The CQR portfolio now stands apart from its peers given the REIT's broader exposure to a more diversified pool of major convenience retailers with lower CapEx intensity due to the exposure to triple net leases and superior long-term income growth characteristics from CPI-linked rental escalations. As stated previously, Charter Hall's ability to access off-market opportunities like the bp, Ampol and Gull portfolios and to partner with other Charter Hall funds to diversify our exposure to leading major tenants is a clear competitive advantage for CQR. As we look to the future, the REIT's portfolio is structured to continue to deliver strong underlying rental growth and a resilient and growing income stream for our investors. Slide 8 details how we delivered against our strategy through active asset management. During the period, we divested 2 noncore retail assets at or above book value as part of our ongoing portfolio curation, enabling us to increase our exposure to triple net lease Long WALE convenience retail assets. In the first half, CQR acquired a $58 million Long WALE convenience retail portfolio in New Zealand leased to Gull. This portfolio was acquired on an attractive 6.4% initial yield, has annual CPI-linked rent reviews, a triple net lease structure and is predominantly located in metro and commuter metro locations. In October 2022, the fund added a 49% ownership interest in 51 Long WALE convenience retail properties leased to Z Energy, also in New Zealand. This $120 million off-market acquisition extended CQR's relationship with Ampol, growing total portfolio income from this tenant customer to 4.5%. Ampol is now CQR's fifth largest tenant customer. In April 2023, the fund invested $61 million into the Long WALE Investment Partnership 2 portfolio of 11 Endeavour Group leased assets. This LWIP2 portfolio also significantly increases CQR's exposure to major tenant Endeavour Group, now CQR's sixth largest tenant customer, and 1.8% of portfolio income. LWIP2 further diversifies and improves the resilience of our income profile while giving us greater exposure to an important convenience retail asset class. Importantly, these acquisitions further improve the growth profile of our major tenant income with attractive triple net leases and CPI-linked annual escalations. All of CQR's acquisitions completed in FY '23 were secured off-market by Charter Hall, again demonstrating the value of Charter Hall's management of CQR by providing access to opportunities unavailable to other REITs. Slide 9 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 20.2 megawatts of solar across 38 locations and have 9-megawatt hours of battery storage installed across 5 locations. We remain on track to provide 100% renewable electricity to the common areas of all of our shopping centers in 2025, and we've seen an improvement in our NABERS Energy and Water portfolio ratings up to 4.9 and 4.2 stars, respectively. Pleasingly, the CQR portfolio also achieved a GRESB score of 90 in the 2022 GRESB assessment, an improvement of 11 points which ranked CQR in second place for Australian and New Zealand listed retail entities. In addition to our environmental commitments, we recognize the important role our centers play in our local communities. This year, our shopping centers continue to champion belonging, understanding and inclusion through a National Reconciliation Week, which is an important time that all Australians can learn about our shared histories, cultures and achievements. As part of our ongoing give-back commitment, we also provided over 3,000 lunchboxes for children within our local communities through our back-to-school campaign and proudly partnered with WorldPride to celebrate their Rainbow Runway Activation. Throughout FY '24, we'll continue to proactively enhance our environmental achievements and work with our communities to provide ongoing meaningful support. Slide 10 outlines the results of our annual CentreSAT survey. Annually, we continue to engage Monash University's Business School to survey our center-based tenant customers to deeply understand their satisfaction levels within the CQR portfolio and in their dealings with the Charter Hall team. For our annual CentreSAT survey, we again achieved a market-leading 97% participation rate from our tenant customers, with over 1,100 tenants providing us with their feedback. Notably, our tenant customers ranked us first amongst our major peers in likely to recommend for the third consecutive year, and we maintained the highest satisfaction score for overall CentreSAT. We also maintained high satisfaction scores on all key metrics. And once again, our tenant customers told us it's our people and the way we communicate that are our greatest strengths. Throughout the past 12 months, it's the Charter Hall team and their commitment to maintaining strong tenant customer partnerships that has been critical in the ongoing delivery of CQR's strategy. I would again like to acknowledge and thank our teams for their continued efforts and the important work they do each day in our centers and with our tenants. It's this ongoing focus on our tenant customers that leads to higher tenant retention and center occupancy. I'll now hand over to Joanne to talk through the financial results for the period before moving on to the operational performance in more detail.

Thank you, Ben, and good morning. Our operating earnings and distributions for FY '23 can be found on Slide 12. Total net property income grew by 7.2% to $237.6 million for the year. This increase has been driven by same-property NPI growth of 3.3%, with like-for-like convenience shopping center NPI growth of 3.1% and like-for-like convenience Long WALE retail growth of 4.7%. Further growth was delivered from the full year impact of our off-market investments in Butler Central and the Ampol portfolio in late FY '22, along with the Z Energy, Gull and LWIP investments in this period. Finance costs have increased, reflecting the significant rise in interest rates during the year. CQR's weighted average cost of debt increased from 2.7% in FY '22 to 3.4% in FY '23. Increase in other expenses reflects the timing of transactions, capital spend and valuation changes. We delivered operating earnings of $166.9 million or $0.2871 per unit and distributions of $0.2580 per unit for the year. This reflects EPU growth of 1.1% and DPU growth of 5.3%. Our operating earnings payout ratio has increased from 86% to 90%. This reflects the absence of COVID-19 support during the period. It also reflects the growing portion of triple net lease assets in the portfolio, providing CQR unitholders with a true AFFO yield. The difference between statutory profit and operating earnings is primarily due to 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. There was a $15 million movement in investment property in the period. There were $260 million of property acquisitions in the year together with $259 million of divestments, which were sold at or above book value. In addition, there was a valuation decrement of $16 million, which includes a capital investment of $79 million in the financial year. Net borrowings have increased as a result of transaction activity and capital spend in our shopping center assets. The net property valuation movement has been the main driver of the movement in NTA, which has decreased by 3.7% from $0.0491 per unit to $0.0473 per unit. Our key valuation metrics are shown on Slide 14. 97% of the portfolio was revalued externally as at 30 June, with a valuation decrease of $16 million or negative 0.4%. The strong income growth the portfolio delivered acted to offset most of the impact of capital movements. The total portfolio valuation movement of negative 0.4% is split between positive 4.8% income growth and negative 5.2% capital movement. The shopping center portfolio value declined by $22 million or 0.7%. This includes capital investment of $79 million in the financial year. The like-for-like convenience Long WALE retail portfolio decreased in value by 2.1%, but after foreign currency translation on the New Zealand assets, the overall Long WALE retail portfolio increased in value by 0.6% or $6 million. Both segments experienced cap rate expansion, with 36 basis point expansion in the shopping center portfolio and 50 basis points in the Long WALE portfolio. This resulted in the total portfolio cap rate expanding from 5.2% to 5.57% as at 30 June 2023. In the first half of FY '24, 88% of our convenience Long WALE assets have CPI-linked rental reviews based upon September CPI print. This will be reflected in valuations as at 31 December. Slide 15 shows key highlights for capital management. CQR enjoys diversified funding sources with no debt maturing until March 2026. During the 6-month period, we extended $180 million of existing capacity into FY '29. This results in a weighted average debt maturity of 4 years. Additionally, in July, we increased our debt facilities by $150 million. This puts CQR in a strong capital position with available investment capacity of $239 million. Balance sheet gearing remains low at 29.0%, and look-through gearing is in the lower end of the 30% to 40% range at 34%. We're comfortably within our gearing and ICR covenants, and during the period, Moody's reaffirmed our Baa1 issuer rating with a stable outlook. CQR took out an additional $370 million of hedging in FY '23. This takes total look-through debt hedged to $1.1 billion. CQR has a weighted average hedge maturity of 1.9 years. CQR is now 70% hedged for the next financial year at an average hedge rate of 1.8%. We will continue to monitor the hedging market and look to increase and extend our hedging where opportunities present. Further details on the REIT's hedging profile can be found in Annexure 4. I'll now hand back to Ben.

Thanks, Jo. Now turn to Slide 17, the portfolio summary. During the year, our convenience shopping center portfolio occupancy maintained an all-time high of 98.6%. As noted earlier in the presentation, CQR's portfolio MAT growth was very strong at 5.9%. This growth demonstrates the resilience of the nondiscretionary nature of the portfolio and the strength of the REIT strategy. The portfolio WALE remained stable at 7.4 years, following the off-market acquisitions of the Z Energy, Gull and LWIP2 portfolios as well as strong leasing renewal activity. Importantly, the portfolio now has 59% of total income growth directly or indirectly linked to inflation, with 24% of income growth linked to CPI and a further 35% of total income growth indirectly linked to inflation through turnover rent mechanisms. Moving now to Slide 18 and outlining our tenant customer composition in some more detail. As mentioned earlier in today's presentation, we are pleased to have added Gull to our portfolio and extended our existing relationships with Ampol and Endeavour Group, again, increasing the diversity of our major tenant customers. As a result, CQR's total portfolio income from major tenant customers increased to 57% and major tenant rental growth in FY '23 was 3.7%, up from an average of 1.2% prior to the curation of the portfolio. Following these off-market acquisitions in FY '23, Ampol, Endeavour Group and Gull are now the fifth-, sixth- and ninth-largest tenant customers, respectively. Across the major supermarket providers, we remain well balanced between Coles and Woolworths and continue to partner with Aldi. 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 Long WALE convenience retail portfolio. Our Long WALE convenience retail assets now represent 25% of CQR's portfolio by value and 19.5% of total portfolio income. These assets are all triple net leased, meaning they're free of any CapEx expenditure and provide a true AFFO yield for CQR investors. The rent review mechanisms are CPI-linked, delivering meaningful income and growth to the portfolio, with the Long WALE convenience retail major tenants delivering 6.2% growth in FY '23. These Long WALE convenience retail assets complement CQR's existing convenience-based portfolio and provide valuable diversification benefits, enhanced tenant covenant quality 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-based shopping center portfolio. During the period, supermarkets delivered MAT growth of 4.3% and, importantly, supermarkets paying turnover rent delivered an even stronger MAT growth of 4.9%. The number of supermarkets in turnover was a record high at 67%, up from 62% in FY '22. Although we have seen a significant increase in supermarkets paying turnover rent, pleasingly, supermarkets within 10% of their turnover rent thresholds remained stable at 18%. In an ongoing and elevated inflationary environment, CQR's high percentage of stores paying turnover rent or within 10% of turnover rent thresholds provides valuable rental growth exposure to inflation and 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 seen us agree terms at 11 supermarket locations to enhance home delivery and direct-to-boot facilities, unlocking additional major tenant customer investment in our assets. Additionally, this ensures we capture further 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. FY '23 has seen record high specialty tenant sales growth and productivity. These strong trading numbers are a direct result of the quality of our convenience retail shopping centers and their dominant position within their catchments. For the period, we completed 420 leasing transactions, made up of 161 new leases, with positive leasing spreads of 1.7%; and 259 renewals, achieving positive leasing spreads of 2.7%. Combined, these translate to positive leasing spreads of 2.5% across the specialty tenant portfolio. As mentioned earlier, specialty sales growth was exceptionally strong at positive 9%, up from minus 3.7% in FY '22. And specialty productivity achieved an all-time portfolio high of $10,489 per square meter. Occupancy costs remained at a very sustainable 11.4% and provide room for future rental growth. Pleasingly, our retention rate remains high at 83% as tenant customers continue to see the attractive nature of our centers. The portfolio of strong sales productivity, sustainable occupancy costs, continued positive leasing spreads and high tenant retention demonstrates the quality of the portfolio and the defensive nature of CQR's rental income. Slide 22 details our asset enhancement activity over the year. We continue to invest in our centers, ensuring they retain their position as the dominant convenience centers in their catchments. During the year, we completed the Stage 1 redevelopment of Rosebud Plaza, investing alongside our major tenant customer, Woolworths, delivering a new supermarket, complemented with a significant ambience upgrade to the center and new specialty tenant customers. Stage 2, introducing a new Dan Murphy's and BCF, is now well underway with completion due in October 2023. Continuing our commitment to invest alongside our major tenant customers, we have aligned our capital works to enhance their omnichannel offerings at 13 locations, assisting to secure lease extensions and driving overall center MAT. During the period, we completed 3 highly accretive pad site developments that delivered yields on costs ranging from 8% to 18%, taking advantage of underutilized low site coverage ratios. We have a further 2 pad site developments currently underway with a Dan Murphy's at Carnes Hill and Aquatic Achievers swimming school at Arana Hills. additionally, we have agreed terms on a further 5 pad site development opportunities and we continue to investigate further opportunities and remain in active discussions with a range of operators across our portfolio. Finally, turning to Slide 24 for outlook and guidance. CQR's strategy remains consistent and is focused on nondiscretionary convenience retailers providing income growth and resilience. Our expectation is that positive leasing spreads, high occupancy levels and MAT growth will continue. We also expect to benefit from direct and indirect inflation-linked rental growth and our increasing exposure to CapEx-efficient triple net leases. We will remain diligent in enhancing the portfolio quality through curation and active asset management complemented by our increased focus on Long WALE convenience retail. Barring any unforeseen events, FY '24 operating earnings per unit is expected to be approximately $0.274 per unit. The distribution payout ratio range is expected to be 90% to 95% of operating earnings. That ends the formal presentation. And with that, I now invite questions.

[Operator Instructions] The first questions comes from the line of Sholto Maconochie from Jefferies.

Just on the guidance. On the distribution, I know you don't have the COVID impacts and have the more triple net leases. You normally give to sort of no less than. What's with the sort of change? Does that just to give you flexibility based on CapEx? I'm just trying to understand the change in that.

Sholto, Ben here. Now look, we just sort of -- well, obviously, you correctly pointed out, moved through a period we've had COVID impacts flying through results. This is consistent with how we operated pre-COVID. And from our perspective, I think it's pretty prudent to move back to that. And you can look at past results to see how we've delivered prior to COVID.

Okay. And then just on the guidance, what do you assume in the like-for-like number? I think you did 3.3% overall for the portfolio. What are you assuming in guidance for like-for-like this year?

Yes. Look, roughly consistent, Sholto, we've actively curated the portfolio towards assets that have more certain income growth and triple net leases without CapEx drag. So I think that's a pretty prudent number to assume.

Would it be slightly high given you've got the lag with inflation-linked leases coming through in FY '24? I think it was 3.3%, so wouldn't it be a bit higher in '24, given that lag in inflation coming through?

Look, we've obviously seen some strength in the inflation coming through. But equally, we've had a very strong year given the exceptional performance of MAT in our shopping centers through [ both ], especially MAT and the supermarkets. So I expect around that sort of 3-ish percent is about right. And so I'm sure we'll be good this year.

Okay. and then just on the -- you've increased hedging of 1.8%. What's the margin again for CQR on that?

So our FY '24, our margin is 1.8%.

And a bit what BBFY you're assuming for 4.5%?

We've provided the weighted average cost of debt of 4.3%. That is as at 30 June, and that included a BBFY of 4.4%, which is what we unrolled our first quarter debt at.

So 4.5% was it, sorry?

Sorry, 4.4%.

4.4%, okay.

That was the first quarter, Sholto, and then obviously, we're just following the curve thereafter.

Yes. It makes sense, it moves around a bit. And then is there any flagged asset sales or acquisitions you'd look at making assumed in guidance at all?

No, the guidance doesn't assume any acquisition or divestment activity. Obviously, we'll look for opportunities during the year if opportunities exist to improve the quality of our portfolio and quality of our earnings growth, but at this stage, no, nothing in guidance.

[Operator Instructions] Next questions comes from the line of Tua Thuvarakan from Macquarie.

First question was just on your swaps that you purchased in March. And then I can see in July, you've entered the [indiscernible] market. Can you just talk through your rationale for how you came about these decisions for purchasing them and also, forward-looking, what your thoughts are as hedging rolls off in FY '25 and '26, please?

Yes, no problem. So look, we've got 16 swaps across our book, 15 of which are at market. At the time when we entered into that one swap at 3%, it was a period of volatility, and we assumed to -- it was pretty prudent to enter into that one. It's not a material amount of money, but it was entered into that way. Going forward, you're right. We've entered into swaps at market. Obviously, being part of the Charter Hall platform, we've got a large treasury team who are monitoring market at all points in time. And when opportunities come up through the volatility in rates, we'll look to continue to enter into hedges going forward to protect earnings.

Okay. The next question I want to touch on was just the specialty re-leasing spreads. So they've ticked down a bit over the second half. I understand it's still positive, and you're expecting that to remain positive in the next financial year. But do you expect them to continue to trend lower? Is that right?

No. Now look, it's been a bumpy series. It all depends on what tenants are coming in and out of the portfolio in a given point in time. One thing that is consistent is you'll note across our annexures, and we talked about in the past is, we've never printed negative re-leasing spreads. So we expect that to continue going forward, and it really sort of demonstrates the resilience of our portfolio, the nondiscretionary nature of it and obviously the strong sales and productivity numbers of our tenants going forward.

Cool. And my last question was just on your planned CapEx initiatives. So you talked through a few of the projects on the go. How much should we think about now in terms of amount for CapEx in FY '24? And I know you flagged returns for your pad sites, but what are the returns on kind of your asset enhancement projects?

Look, the asset enhancement projects are just generally things that look at leasing initiatives across properties. They're not materially large projects at all, so I'd just assume that our pad sites are probably the ones where we really looking to that value and initiatives. We've been pretty prudent in managing our assets and making sure that the quality of them remain consistent. That's reflected in sales growth. And once again, positive leasing spreads become more apparent because our centers are well maintained, well leased and higher quality in their catchments.

Our next questions comes from the line of Murray Connellan from Moelis Australia.

I was wondering whether you could just give us a quick update around your strategy, perhaps thinking around acquisitions and divestments going forward and whether you see exposure to that Long WALE style of asset continue to grow in your portfolio relatively speaking. And then also, maybe just touch on the gearing level at the moment, look-through being 34%, obviously at the lower end of your range, but what are you targeting in terms of gearing levels in the sort of near to medium term?

Sure. So look, the strategy is pretty consistent. We'll continue to look to improve the quality of our portfolio. We are realistically agnostic about whether investing in traditional shopping center assets or the convenience Long WALE retail assets. Obviously, the convenience Long WALE retail assets have provided great income growth in the recent times because of that CPI-linked rental growth and the triple net nature of them mean no CapEx drag. So it'll be opportunity driven, but we'll assess opportunities as they do come up. And the important thing is, we're always looking to improve the quality of our portfolio and the quality of our income growth. The second part of your question is around our gearing range at 34%. You're correct, that's the lower end of our band. We have no major intention of increasing that, and we're very comfortable at the lower end of our range going forward.

Next questions comes from the line of Richard Jones from JPMorgan.

Just wondering if you can talk us through your strategy around the acquisition of what, I guess, at the moment is the minority stake in LWIP2 and what the longer-term strategy might be?

Yes. Look, thanks, Richard. The acquisition of the LWIP2 investment, it realistically is increasing our exposure to one of our major tenant customers. Endeavour has been part of our portfolio for a long time with BWS and Dan Murphy's. This is an opportunity to invest in further assets leased by them, which are of that convenience based, triple-net Long WALE nature with CPI rental reviews. As we've talked about previously, they've got high underlying land values, they've got great rent growth characteristics and the triple net nature means no CapEx drag. So look, we see that as a natural extension of our Long WALE strategy. And we've got multiple examples across our portfolio where we've got a shopping center, a service station and a pub in the same catchment. They're all the same investment customers going to [ use ] those facilities. So for us, it's just a nice logical part of that portfolio.

So maybe you can just clarify though, the thinking of buying a stake in an unlisted fund as opposed to buying assets directly?

It's a pretty tough market to get direct assets in. When we bought into that existing fund we actually acquired 2 new assets as part of that. And that was the CQR injection of money into that fund to allow that fund to acquire those assets. So we are looking to increase that through new asset acquisitions as they come up.

So is the strategy to get to 50%? Is that [indiscernible]?

Sorry, I missed that, mate, repeat?

Is the strategy to get to 50% of the fund?

Yes. Absolutely. And that will be through organic growth of that fund, not through us buying off our investment partner in [indiscernible].

Okay. And just in terms of specialty leasing completed through the year, is there any difference in term and fixed increases, and maybe can you touch on incentives as well?

Yes, sure. So the average lease term in our portfolio is 6.7 years. It's pretty consistent where it's been. It's probably a bit longer than it was a few years ago and just reflects the nature of the tenants in our portfolio. Leasing incentives are approximately a bit over 12 months for those 6.7 years, and the rental increases remain -- you've seen them at 4% now and 4.1% previously, so pretty consistent, and we expect that to be the same going forward.

Sorry, just to clarify, the term of the new leases is on average 6.7 years?

That's correct. So look, it's between 6 and 7 years is the average one, but the exact number is 6.7 years.

The next questions comes from the line of Alexander Prineas from Morningstar.

Just on the Long WALE and particularly the service station assets, do you disclose any metrics by occupancy [indiscernible]?

No, we don't.

Okay. Just, is there any -- can you -- I guess, can you comment on whether, given the structure of those leases, whether they're sort of under- or over-rented versus market rent and whether -- and do they sort of start out under-rented and end up over-rented by the end of the lease? Is that kind of the expectation there?

Absolutely not. Absolutely not. All of our Long WALE acquisitions are done on sale and leaseback basises, off-market, accessed by the Charter Hall transaction team. And we've got a great starting point where, like the pubs, like the service stations, you start those at below market rent position typically. And obviously, the inflation-linked rent growth tracks their sales growth over time. And more importantly, the underlying land value of those assets continues to increase at a rapid rate. So you have this fantastic land holding leased to major national international groups and at very sustainable rent levels. So we're very comfortable with those. And there's a reason why sale and leasebacks have been so important to the Charter Hall business and to CQR.

[Operator Instructions] At this time, there are no further questions from the line. I would like to hand the call back to management for closing.

Thank you all very much for listening today. Good luck with the rest of the results season and look forward to talking to you all in the coming days. Thank you very much.