Charter Hall Long Wale REIT: Property Revaluation and Rental Uplifts Adds Some Covenant Headroom

Charter Hall Long Wale REIT's, or CLW's, market update this week revealed a 4.1% valuation increase for its BP Australia portfolio and a 2.2% uplift for its Long Wale Investment Partnership pub assets. These assets collectively account for about one-fifth of CLW’s property portfolio. The increases were driven by inflation-linked rent increases, based on the recently released September Consumer Price Index numbers. We had previously highlighted that CPI clauses in the leases could provide some support to valuations, and this news vindicates that view. We had also previously noted that CLW’s gearing is higher than we’d prefer, so the valuation increases provide welcome additional headroom with respect to its debt covenants. We still think the REIT has too much debt, and the devaluation of other assets in the portfolio remains a risk.