Charter Hall Social Infrastructure REIT (ASX:CQE) reported first-half FY26 results that management said were supported by “high organic rental growth” and ongoing portfolio reshaping, delivering higher operating earnings and prompting an upgrade to full-year distribution guidance.
First-half earnings and distribution growth
Fund Manager Travis Butcher said results for the half-year ended 31 December 2025 were underpinned by like-for-like weighted average rent reviews of 4.2% and “creative portfolio curation.” Operating earnings for the half were AUD 0.085 per unit, up 11.8% from the first half of FY25, while distributions paid were AUD 0.084 per unit, a 12% increase on the prior comparable period.
Kent added that the first-half distribution represented a 99% payout ratio. Based on the upgraded full-year distribution guidance, management expects second-half distributions to increase to AUD 0.086 per unit.
Upgraded FY26 guidance
Management upgraded guidance, stating that, “based on information currently available and barring any unforeseen events,” FY26 earnings per unit guidance is no less than AUD 0.172 and distribution guidance is AUD 0.17 per unit, which the team said is an 11.8% increase from FY25.
In Q&A, management confirmed guidance assumptions are aligned with the latest market interest-rate curve following the prior day’s move, with Kent saying the remainder of FY26 assumes a floating rate “in line with market” and that the embedded change was “fully priced in.” Asked what drove the guidance upgrade, Butcher said the “biggest component” was accretive portfolio curation—highlighting additional upweighting to longer-WALE assets and divestment activity—rather than market rent reviews, which were already included in forecasts at the time of earlier guidance.
Portfolio activity: acquisitions and divestments
CQE reported acquisitions totaling AUD 181 million during the half at an average yield of 6.8%. The key transaction was the acquisition of a 50% interest in the Western Sydney University campus in Parramatta for AUD 152 million, at a current yield of 6.5%. Butcher described the campus as a modern, purpose-built facility completed in 2017 with approximately 26,500 square meters of net lettable area in Parramatta’s CBD. He said the asset has 16.1 years of lease term remaining, annual rental reviews of 3.75%, and a “well-capitalised tenant who’s also a co-owner of the asset.”
On divestments, management said CQE contracted to sell 20 early learning properties for AUD 89 million, completed at a 4.6% premium to previous carrying value and an average yield of 4.3%. Kent added that 19 of those divestments had settled in the first half, with a further four early learning centers (about AUD 21 million) expected to complete in the second half.
Butcher also outlined longer-term portfolio positioning since 30 June 2022, saying CQE has increased its weighting to long-WALE social infrastructure assets to 35% from 15%. Over that period, the REIT acquired four long-WALE social infrastructure assets totaling AUD 422 million at an average yield of 6.5%, predominantly funded through the divestment of 74 early learning assets totaling AUD 320 million at an average yield of 4.4%, representing a yield spread of “over 200 basis points.”
Asked whether early learning (ELC) would continue to be diluted, Butcher said management had previously flagged a likely trend toward “50/50” over time, but emphasized capital allocation decisions will be driven by tenant quality, social infrastructure fit, and “key property fundamentals” across subsectors.
Rent reviews, occupancy, and lease profile
Management highlighted ongoing rental growth, with Butcher saying like-for-like rental growth over the last 12 months was 4.2%, reflecting the completion of 114 market reviews. During the half, CQE completed 58 early learning market reviews, producing a 6.1% uplift and an additional AUD 0.7 million of rental income across those properties. Butcher said 52 of the reviews were capped up to 7.5%.
In Q&A, Butcher provided additional detail, stating the six uncapped reviews delivered a 3.1% uplift and were associated with new leases at their first market review five years into the term. He also said average rent per place for those centers was about AUD 4,800 versus roughly AUD 3,000 across CQE’s overall portfolio.
Butcher said there is further potential for rent increases, noting 81 early learning properties (about 16% of rental income) are subject to market reviews through to June 2028. He added that operator fees, based on tenant data to September 2025, increased 8.4% year over year, which management said supports the view that parts of the early learning portfolio remain “under-rented.” He also cited CQE’s net rent-to-revenue ratio of 9.7%, which he said is “clearly below market parameters.”
Portfolio metrics disclosed on the call included:
- 308 properties across Australian social infrastructure subsectors
- 99.6% occupancy
- 11.4-year weighted average lease expiry (WALE)
- 5.5% property passing yield
- 72% of leases are triple net
Occupancy dipped due to one childcare center where the tenant entered administration, Butcher said. He said an active leasing campaign is underway and management hopes occupancy returns to 100% by 30 June. He also noted a vacant early learning property had been divested following a mutual agreement with the tenant to exit the location.
Balance sheet, hedging, and valuations
Kent said 61% of the portfolio was independently valued in the last six months, contributing to a net valuation uplift of AUD 12.2 million. Net tangible assets were AUD 3.90 per unit at 31 December 2025, up 1% from 30 June 2025, which management attributed to revaluations.
On funding, Kent reiterated that CQE refinanced its entire debt platform (previously announced at the August full-year result), adding diversification via the Asian term loan market, extending tenor, and increasing covenant headroom. She said improved pricing reduced the weighted average credit margin by 20 basis points.
As at 31 December 2025, CQE reported:
- 34.1% gearing, within the 30%–40% target range
- 5.1% weighted average cost of debt
- 81% balance sheet hedging at an average fixed rate of 3.3%
- 4.4 years weighted average debt maturity, with no facilities expiring until FY30
Management said hedging was increased to 83% for the second half of FY26 and to 63% for FY27 through extensions of existing positions, and that it intends to remain active in managing the hedge profile. Kent said gearing is expected to move closer to 33% once proceeds from the remaining held-for-sale early learning centers are received.
Butcher also addressed capital allocation and buybacks, saying the Western Sydney University investment—citing a forecast property IRR “close to 10%” and a 6.5% yield—was viewed as a better use of capital than completing the remainder of a buyback, though he said the decision would be reassessed over time.
About Charter Hall Social Infrastructure REIT (ASX:CQE)
Charter Hall Social Infrastructure REIT is the largest Australian ASX-listed real estate investment trust (A-REIT) that invests in social infrastructure properties. Charter Hall Social Infrastructure REIT is managed by Charter Hall Group (ASX:CHC). With over 30 years’ experience in property investment and funds management, we’re one of Australia’s leading fully integrated property groups. We use our property expertise to access, deploy, manage and invest equity across our core sectors Office, Industrial & Logistics, Retail and Social Infrastructure.
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