Undervalued REIT delivers strong earnings growth

Morning Star AU

Aug 07

Charter Hall Social Infrastructure (ASX.CQE) increased operating earnings 13% in fiscal 2026, to 17.3 cents per unit. Distributions per unit of 17.0 cents were up 12% year on year. In fiscal 2027, ...

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Distributions per unit of 17.0 cents were up 12% year on year. In fiscal 2027, ...</p>\n\n<a href=\"https://www.morningstar.com.au/stocks/undervalued-reit-delivers-strong-earnings-growth\">Source Link</a>\n\n</div>\n","source":"morningstar_stock","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Undervalued REIT delivers strong earnings growth</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nUndervalued REIT delivers strong earnings growth\n</h2>\n\n<h4 class=\"meta\">\n\n\n2026-08-07 00:00 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://www.morningstar.com.au/stocks/undervalued-reit-delivers-strong-earnings-growth><strong>Morning Star AU</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Charter Hall Social Infrastructure (ASX.CQE) increased operating earnings 13% in fiscal 2026, to 17.3 cents per unit. Distributions per unit of 17.0 cents were up 12% year on year. In fiscal 2027, ...</p>\n\n<a href=\"https://www.morningstar.com.au/stocks/undervalued-reit-delivers-strong-earnings-growth\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"SPYG","symbol_name":"SPDR Portfolio S&P 500 Growth ETF","start_time":0,"source_url":"https://www.morningstar.com.au/stocks/undervalued-reit-delivers-strong-earnings-growth","article_id":"2657692219","we_media_id":null,"thumbnails":[],"rights":{"source":"morningstar_stock","url":"https://www.morningstar.com.au/stocks/undervalued-reit-delivers-strong-earnings-growth","rn_cache_url":null,"directOrigin":true},"url":"https://stock-news.laohu8.com/highlight/detail?id=2657692219","pubTimestamp":1786032000,"columns":[],"sourceInfo":{"source_id":"morningstar_stock","name":"Morning Star"},"weMediaInfo":null,"summary":"Charter Hall Social Infrastructure (ASX.CQE) increased operating earnings 13% in fiscal 2026, to 17.3 cents per unit. Distributions per unit of 17.0 cents were up 12% year on year. In fiscal 2027, man","collect":0,"end_time":0,"defaultTopTitle":"morningstar.com.au","property":["earning"],"viewcount":null,"language":"en","relate_stocks":{"SPYG":"SPDR Portfolio S&P 500 Growth ETF","RJMG":"FT RAYMOND JAMES MULTICAP GROWTH EQUITY ETF","FEBU":"AllianzIM U.S. Equity Buffer15 Uncapped Feb ETF","PJFG":"PGIM JENNISON FOCUSED GROWTH ETF","PMDE":"PGIM S&P 500 Max Buffer ETF - December","PEMX":"PUTNAM EMERGING MARKETS EX-CHINA ETF","PKW":"Invesco BuyBack Achievers ETF","RNTY":"YIELDMAX TARGET 12 REAL ESTATE OPTION INCOME ETF","MDIV":"First Trust Exchange-Traded Fund","YLDW":"Westwood Enhanced Income Opportunity ETF","DFRA":"Donoghue Forlines Yield Enhanced Real Asset ETF","KOOL":"NORTH SHORE EQUITY ROTATION ETF","REGS":"Columbia Large Cap Growth ETF","TPFG":"Timothy Plan Free Cash Flow Growth ETF","VGFPF":"Vanguard Funds PLC","THRO":"iShares U.S. Thematic Rotation Active ETF","STXD":"STRIVE 1000 DIVIDEND GROWTH ETF","JOYT":"JPMorgan Equity and Options Total Return ETF","PSCF":"Invesco S&P SmallCap Financials ETF","BPRE":"Bluerock Total Income+ Real Estate Fund","GQQQ":"Astoria US Quality Growth Kings ETF","RGLO":"Global Equity Active ETF","VOTE":"TCW Transform 500 ETF","IQRA":"NYLI CBRE Real Assets ETF","IVRA":"Invesco Real Assets ESG ETF","GXDW":"Global X Dorsey Wright Thematic ETF","CDIG":"City Different Investments Global Equity ETF","BINT":"Bluemonte Global Equity ETF","DECU":"AllianzIM U.S. Equity Buffer15 Uncapped Dec ETF","AVUQ":"AVANTIS U.S. QUALITY ETF","BWQG":"BWM Quality Growth ETF","USSE":"SEGALL BRYANT & HAMILL SELECT EQUITY ETF","FEMG":"Fidelity Enhanced Mid Cap Growth ETF","PCLC":"Polen 5Perspectives Large Growth ETF"},"translate_title":"被低估的房地产投资信托基金带来强劲的盈利增长","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"FEBU":1.5,"BINT":1.5,"BPRE":1.5,"IQRA":1.5,"SPYG":1.5,"PCLC":1.5,"PSCF":1.5,"RGLO":1.5,"RJMG":1.5,"DECU":1.5,"TPFG":1.5,"PKW":1.5,"IVRA":1.5,"VOTE":1.5,"GXDW":1.5,"USSE":1.5,"BWQG":1.5,"DFRA":1.5,"PJFG":1.5,"CDIG":1.5,"VGFPF":1.5,"KOOL":1.5,"FEMG":1.5,"PMDE":1.5,"AVUQ":1.5,"PEMX":1.5,"MDIV":1.5,"REGS":1.5,"THRO":1.5,"GQQQ":1.5,"STXD":1.5,"JOYT":1.5,"YLDW":1.5,"RNTY":1.5},"content_text":"Charter Hall Social Infrastructure (ASX.CQE) increased operating earnings 13% in fiscal 2026, to 17.3 cents per unit. Distributions per unit of 17.0 cents were up 12% year on year. In fiscal 2027, management expects operating earnings growth of at least 5%, to 18.1 cents per unit.Why it matters: The result met our expectations. On a like-for-like basis, net rental income increased 4%. The strong earnings growth is also driven by the sale of lower-yielding childcare centers and reinvestment of the proceeds into higher-yielding social infrastructure assets.This is consistent with its strategy to diversify into other essential-services subsectors such as higher education and healthcare, which we view as sensible. Childcare accounts for 61% of the portfolio income today compared with 88% in June 2021.Fiscal 2027 operating earnings guidance is a modest beat relative to our forecasts, thanks to the earnings accretion from recent acquisitions. Forward distributions of 18.00 per unit offer an attractive unfranked income yield of 6.5% at the current share price.The bottom line: Our fair value estimate of $3.70 for no-moat Charter Hall Social is retained. Securities rallied almost 9% on the day of the results, yet it remains materially undervalued.We think the market underappreciates its asset quality and income resilience. Investors have priced in further drops in social infrastructure asset valuations as bond yields remain elevated. Yet net tangible assets as of June 30, 2026 improved slightly to $3.93 per security.Capitalization rate, net rent income over property value, expanded slightly due to higher bond yields. But the expansion was more than offset by solid rent growth. Charter Hall Social’s portfolio valuation has remained stable over the past 12 months.Key stats: The balance sheet is in reasonable shape. Gearing (net debt/tangible assets) was 34% at the end of June 2026, within management’s target band of 30%-40%.Earnings-Accretive Acquisitions Drive Earnings Growth for Charter Hall Social InfrastructureCharter Hall Social Infrastructure REIT is a reincarnation of Folkestone Education Trust, following Charter Hall Group’s acquisition of Folkestone, a smaller property fund manager, in 2019. From a pure play childcare property trust, Charter Hall Social has expanded into other social infrastructure sectors, such as higher education, healthcare, transport, and government services. This strategic movement diversifies Charter Hall Social’s income streams. As of June 30, 2026, around 61% of earnings were generated from childcare, versus 88% in June 2021. Portfolio diversification is likely to be an ongoing strategy. We expect the weighting of childcare to continue declining to about half of the property portfolio over the next decade.Charter Hall Social targets stable and resilient earnings, underpinned by its focus on essential-services sectors and long leases to solid and reputable tenants. Tenancy agreements are typically 15 years long, with the option to extend for two additional five-year terms. Generally, tenants are required to give three to five years’ notice in advance if they want to exit, giving the landlord plenty of future revenue visibility. Charter Hall Social typically locks in fixed (3%) or inflation-linked annual rent increases, with rent reviews every five years to recalibrate with prevailing market rates. Overall, we assume like-for-like rent growth will average 3% per year over the next decade, broadly in line with the historical average.Acquisitions and divestments give earnings upside. Unlike its closest rival, Arena REIT, Charter Hall Social prefers acquiring established assets over developing them. In recent years, Charter Hall Social has actively curated its portfolio by selling lower-yielding childcare centers and replacing them with higher-yielding social infrastructure assets. This strategy could result in a one-off earnings boost, like the 13% earnings growth in fiscal 2026. However, such opportunities are sporadic, and they require management expertise and effective execution. Our base case does not factor in any revenue spikes in the explicit forecast years.Bulls SayThere is growing demand for childcare centers, given rising population, increasing workforce participation rate, and ongoing government subsidies.Charter Hall Social’s income is relatively stable and predictable. Lease terms are typically long, with fixed or inflation-linked annual rent increases. The portfolio has maintained near-full occupancy in the past decade.Charter Hall Social can generate earnings accretion from recycling childcare centers into higher-yielding social infrastructure assets.Bears SayThe hurdles of building new childcare centers are relatively low. In the past decade, a slew of new supply was added to the market.Charter Hall Social’s largest tenant group, Goodstart, accounted for roughly a quarter of total rents as of Dec. 31, 2025. This gives them considerable bargaining power when renegotiating rent.The childcare sector is highly reliant on government subsidies. A reduction or withdrawal of public funding could severely curb operators’ profitability.Subscribe to get Morningstar insights in your inbox","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":false,"editions":null,"column":"","sentiment":"1","news_tag":"","news_rank":0,"isVideo":false,"video":null,"symbols":[],"gpt_button":0,"need_auth":false,"need_login_tip":false,"code":"91000000","status":"200"}}}