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Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Charter Hall Long WALE REIT 2026 Half Year Results Briefing. [Operator Instructions] Please note that this conference is being recorded today, Thursday, the 12th February 2026. I would now like to hand the conference over to your host today, Mr. Avi Anger, Diversified's CEO. Thank you, sir. Please go ahead.
Avi Anger: Good morning, everyone, and welcome to the Charter Hall Long WALE REIT Results Presentation for the 2026 half year. Presenting with me today is Erin Kent, Head of Long WALE REIT Finance. I would 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. The format for today's presentation is that I will start with an overview of CLW and key highlights for the FY '26 half year. You will then hear from Erin, who will provide an overview of the financial performance of the REIT. I will then return to provide an operational update and portfolio overview and provide guidance for FY '26. We will then offer the opportunity for questions. Turning now to Slide 4 and key highlights for the half year. I'm pleased to report that we have delivered operating earnings of $0.1275 per security, representing 2% growth on the prior corresponding period. Our NTA at 31 December is $4.68 per security, an increase of 2% from June 2025. The portfolio delivered 3% growth in like-for-like net property income with 52% of income of the REIT being CPI linked and the balance being fixed reviews. 86% of the portfolio was independently valued during the half year with $139 million net valuation uplift achieved, representing an increase of 2.8% for the properties independently valued. The portfolio is sitting at a very high occupancy level of 99.9%. CLW has a long WALE of 9.2 years, providing security and continuity of income to our investors. We completed $1.1 billion of new interest rate hedging with average forecast hedging of 80% for the balance of this financial year. We remain focused on prudent capital management. Balance sheet gearing is 29.8% within the target range of 25% to 35%. In December 2025, Moody's reaffirmed CLW's Baa1 investment-grade credit rating. We are pleased to reaffirm FY '26 guidance of operating earnings and distribution per security of $0.255, reflecting 2% growth over FY '25. Turning to Slide 5. Today, CLW has a best-in-class $6 billion diversified real estate portfolio secured by long leases to blue-chip tenants with a weighted average lease term or WALE of 9.2 years. Our portfolio has an occupancy level of 99.9% and continues to be diversified by tenant, industry, geography and property type, which contributes to the stability of our cash flow. Our portfolio has delivered strong like-for-like net property income growth of 3%. CLW has 49% of its income derived from triple net lease properties. This is an important feature of our portfolio given that under a triple net lease structure, the tenant is responsible for all outgoings, maintenance and capital expenditure. The security of income of the REIT is also reinforced by the high-quality income stream generated from blue-chip tenants with 99% of the tenants of the REIT consisting of government, ASX, multinational or national businesses. Our largest tenants are federal and state governments, Endeavour Group, Telstra and BP. All leases in the portfolio have annual rent increases with 52% of annual rent reviews linked to CPI with the balance being fixed reviews. Turning to Slide 6. In the following slides, I'd like to provide an overview of the net lease real estate sector, its unique and distinguishing features and why we believe it's an attractive investment proposition. The net lease real estate sector is a sleep well at night investment class, providing investors with stable and resilient income. Long-term leases provide resilient and predictable cash flows. Tenants are blue-chip best-in-class operators, which reduces default risk. Properties are mission-critical to tenants, which reduces vacancy risk and portfolios are diversified by tenant, industry and property type. Turning to Slide 7. On this slide, we outline the features that make CLW Australia's largest and most diversified net lease REIT. CLW has predictable long-term rental cash flow as a result of its long 9.2-year WALE and 30-year WALE plus. The CLW portfolio has average annual rent increases of 3.1% with 52% of lease rent reviews being CPI-linked. CLW's portfolio has relatively minimal landlord expenses as a result of the net, double net and triple net leases in the portfolio. CLW features blue-chip tenant covenants with portfolio occupancy consistently near 100%. 99% of leases are to secure government and leading ASX-listed multinational and national tenants operating in non-discretionary essential industries. CLW's portfolio is diversified across core property sectors and 79% of the portfolio is located on the Eastern Seaboard in prime locations. Turning to Slide 8. CLW provides an attractive distribution yield relative to domestic and global investment options. Based on yesterday's closing price of CLW securities, CLW is forecast to deliver a 6.8% distribution yield in FY '26. This distribution yield is considerably higher than what are often considered alternative investment options such as Australian government bonds, big 4 banks, term deposits, the AREIT index and the ASX 200 Index. I would now like to hand over to Erin, who will provide an overview of the financial performance of the REIT.
Erin Kent: Thank you, Avi, and good morning to everyone on the call. Commencing on Slide 10, which provides a summary of CLW's earnings for the first half of FY '26. The REIT achieved like-for-like net property income growth of 3%, which has been further supported by net transaction activity adding incremental income to the portfolio in the current period. Finance costs have increased by 13.6% due to the higher average debt drawn in the first half of FY '26 to fund transaction activity, combined with a higher weighted average cost of debt in the current reporting period. Both operating earnings per security and distribution per security for the first half of FY '26 were $0.1275, representing growth of 2% on the prior corresponding period and in line with our guidance provided to the market. Turning to Slide 11 and CLW's balance sheet position. During the current reporting period, the REIT completed $376 million of net property acquisitions, including the on-completion value of the new Coles distribution center in Truganina, which Avi will talk through shortly. 86% of CLW's portfolio was independently valued throughout the last 6 months, resulting in a total portfolio valuation uplift of $139 million. The REIT's NTA per security is $4.68, as at 31 December 2025, reflecting an increase of $0.09 since 30 June 2025, driven by the positive revaluations achieved during the half, which was partly offset by the fair value movement of debt and derivatives. Turning to Slide 12, which provides a summary of the REIT's capital management initiatives. During the first half of FY '26, CLW completed approximately $700 million of earnings accretive debt refinancing initiatives. $270 million of new facilities were established on CLW's balance sheet to fund the acquisitions completed in the half. These facilities were 5-year terms and reflected 5 to 10 basis points lower all-in margins versus CLW's current bank facilities. New and refinanced secured debt facilities of $430 million were successfully completed within CLW's joint venture investments. This includes the establishment of a new $375 million secured debt facility within CLW's ALE joint venture partnership, which was previously an unlevered investment. This refinance generates an equivalent capital return to CLW's balance sheet. Financing within the joint venture structure, which owns a high-quality, diverse portfolio of 80 properties resulted in a superior pricing outcome of over 20 basis points lower weighted average credit margin. An additional $55 million of existing joint venture facilities were also refinanced during the period, resulting in an enhanced covenant package and reduced margins of 20 to 45 basis points. As at 31 December 2025, balance sheet gearing was 29.8%, calculated on a pro forma basis, including the return of capital to CLW from the refinance of the ALE partnership. Look-through gearing sits at 41%. The REIT has total facilities calculated on a look-through basis of $3 billion with a weighted average debt maturity of 3.4 years and a smooth expiry profile from FY '27 through to FY '32. Moody's has also reaffirmed its Baa1 investment-grade credit rating for CLW. As at 31 December 2025, CLW's weighted average cost of debt was 4.4% based upon look-through debt drawn of $2.5 billion and look-through hedging of $1.8 billion at an average fixed rate of 2.6%. During the period, the REIT progressively established $1.1 billion of new hedges across its balance sheet and joint venture investments. This has resulted in materially higher hedging coverage of 80% across the second half of FY '26 and 71% on average during FY '27. I will now hand back to Avi to provide an operational update and portfolio overview.
Avi Anger: Thank you, Erin. In the following slides, I would like to provide an operational update, overview of our portfolio and some key attributes of the portfolio. Turning to Slide 14. During the half year, we settled $376 million of net transactions, consisting of $455 million of acquisitions and $79 million of divestments. The acquisitions settled consists of acquisitions announced at CLW's 2025 full year results in August last year, together with the investments announced today in the Coles Core West Distribution Center and the Charter Hall Long WALE office partnership. The divestments consisted of the sale of CLW's interest in the Coles distribution center in Truganina and non-core divestments from our BP Australia and LWIP pub portfolios. The decision was made to sell our interest in the existing Coles distribution center in Truganina and reinvest these proceeds into the new Coles distribution center in Truganina. This is an attractive WALE-enhancing transaction for CLW, converting a 6.6-year WALE to a 20-year WALE from completion. Further details are included on the following slide. In our BP portfolio, which is co-owned alongside BP, BP identified 2 properties over the past 6 months that were considered non-core and recommended these for sale. As previously reported, in our LWIP portfolio, we sold the Brunswick Hotel after receiving an unsolicited offer. The property was sold at a 75% premium to our purchase price and 10% premium to our December book value, demonstrating the embedded value of our long WALE portfolios. Turning to Slide 15. We are pleased to announce that CLW has acquired a 49.9% interest in a super prime automated distribution center currently under construction in the core industrial market of Truganina in Melbourne's West. The facility is 100% pre-leased to Coles for an initial 20-year term. On completion, the facility will be a 68,100 square meter state-of-the-art distribution center and is expected to service all stores in Victoria and Tasmania and will integrate into Coles existing supply chain in South Australia and Western Australia with significant investment by Coles in the automation capabilities of the facility. Construction is expected to complete in 2027 with a forecast on completion value of $440 million with CLW share being $219.6 million. Turning to Slide 16. CLW has acquired a $17.6 million equity interest in a new Charter Hall Long WALE office partnership alongside Charter Hall Group and an institutional capital partner. The partnership owns a portfolio comprising interests in 5 modern prime office buildings in core CBD markets. The portfolio is 98% occupied and leased to Commonwealth and state government and blue-chip multinational tenants with an 18-year portfolio WALE at the time of acquisition and average fixed annual rent reviews of 3.8%. Slide 17 is our portfolio overview. At 31 December, the REIT consisted of a portfolio of 515 properties valued at approximately $6 billion. The portfolio average cap rate is 5.4%. The portfolio is virtually fully occupied with an occupancy of 99.9% and a long-dated WALE of 9.2 years. At December, CLW had 49% of its income derived from triple net lease properties. This is an important feature of our portfolio given that under a triple net lease structure, the tenant is responsible for all outgoings, maintenance and capital expenditure. The properties in the portfolio feature a blend of annual lease review structures, both fixed and CPI-linked. The mix of annual rent reviews resulted in a weighted average rent review of 3.1%. Turning now to Slide 18 and an outline of our tenant customers and the tenant diversification of the REIT. Our portfolio of long WALE properties is leased to high-quality tenants, including government, Endeavour Group, Telstra, BP, Metcash and Coles. The REIT's largest tenant exposures are to government tenants and best-in-class pub and bottle shop operator, the $6.5 billion Endeavour Group. In the data center and telecommunications sector, we have a partnership with another best-in-class operator, the $55 billion Telstra Corporation, which includes our portfolio of 37 exchange properties on long triple net leases. Our BP Australia and New Zealand portfolio of 285 properties on long triple net leases provides us with exposure to the resilient fuel and convenience retail sector. We also have a high proportion of tenants operating in the non-discretionary grocery and food sectors such as Woolworths, Coles, Metcash and Arnott's. Turning to Slide 19 and the industry diversification of our tenant customers. Within our overall portfolio, approximately 99% of tenants are ASX-listed, government or multinational or national corporations, with the vast majority of these tenants operating in non-discretionary defensive industries. The REIT's major sector exposures are to convenience retail, government, data centers and telecommunications, grocery and food manufacturing. Turning to Slide 20 and geographic and sector diversification of the REIT. Our portfolio is diversified by geography and sector type. 79% of the portfolio is located on the Eastern Seaboard in prime locations, whilst the REIT's largest sector exposures are to the convenience, net lease retail and industrial and logistics sectors. Turning to Slide 21. As can be seen from the chart on this slide, the REIT's portfolio has a long-dated lease expiry profile and reflects a low-risk position relative to our peers in the sector. Our portfolio WALE is a long-dated 9.2 years. We have minimal leases expiring in the near term, and we are in discussions with a number of tenants with expiries in FY '26 and beyond regarding lease renewals and extensions. We continue to work to push out our expiry profile as far as possible to the right of this chart, both through portfolio curation and negotiating lease extensions with our valued tenant customers. On Slide 22, we would like to outline that a significant portion of CLW's portfolio is comprised of properties that are of critical importance to the business operations of our tenant customers with the tenants likely to be in occupation well beyond the current lease term. 49% of CLW's portfolio consists of triple net leases. And if these tenants were to remain in occupation for all option periods under their leases, this would increase the WALE of the portfolio to 30 years today. This is particularly relevant in the context of our Endeavour leased ALE portfolio. This represents approximately 11% of CLW's portfolio by income with an expiry and market review in November 2028, less than 3 years away. This is dragging down the average WALE of our portfolio. These properties are very important to Endeavour's business with the tenant likely to remain in occupation of these properties at expiry of the current lease term. This also represents a significant positive market rent reversion opportunity for the REIT. Turning now to Slide 23 and environmental, social and corporate governance. We remain focused on implementing sustainability initiatives across our portfolio and consider ESG as a driver of long-term value for investor and tenant customers. As a business, we've taken accelerated climate action. CLW has maintained net zero Scope 1 and 2 emissions for assets that fall under the operational control of Charter Hall. Additionally, CLW has been focused on clean energy transition with 9.4 megawatts of solar installed across its portfolio, an increase of 500 kilowatts over the past 6 months. CLW's predominantly modern office portfolio features high environmental credentials, with 5.4 star NABERS Energy and 4.9 star NABERS Water ratings, an uplift of 0.2 stars over the past 6 months. CLW remains committed to aligning with best practice frameworks to support transparency and disclosure. The fund achieved a score of 82 in the 2025 GRESB assessment, a 4-point increase from last year. These preceding slides demonstrate the resilience and strength of our portfolio. Our portfolio WALE, quality of tenants and proportion of triple net leases provides better downside protection and more resilient income streams for our investors. Turning now to Slide 25. CLW's strategy is to provide investors with stable and secure income and target both income and capital growth through an exposure to a diversified portfolio leased to corporate and government tenants. The portfolio maintains a long 9.2-year WALE and occupancy remains near 100% with leases to secure blue-chip tenants underpinning stable rental cash flow, which continues to grow with annual rent increases. Active curation and asset recycling continues to enhance portfolio and tenant quality with recent transaction activity included in the FY '26 guidance. Based on information currently available and barring any unforeseen events, CLW reaffirms its FY '26 operating earnings per security of $0.255 and distribution per security of $0.255, which reflects 2% growth over FY '25. This is a distribution yield of 6.8% based on yesterday's closing price of CLW securities. Finally, I would like to acknowledge and thank the teams of people across the Charter Hall platform that contribute to the performance of CLW and the results delivered today. The Charter Hall Group provides the REIT with access to a high-caliber team of experts across all areas of the REIT's management and provides CLW with access to a best-in-class management platform. That concludes the presentation, and I would now like to invite questions.
Operator: [Operator Instructions] Our first question comes from the line of Richard Jones with JPMorgan.
Richard Jones: Just wondering if you can talk me through your thoughts around balance sheet gearing versus look-through gearing, which measure you focus on? And I guess, why do you see that being more relevant?
Avi Anger: Richard, thanks for the question. Look, we have a balance sheet target, as you're aware of 25% to 35%, and we sit comfortably within that range. Look, we provide look-through gearing measure as well given that our covenant is pegged to that. So we give that measure as well. But bearing in mind that we have sufficient buffers to those covenants and also in our underlying JVs, we've got plenty of headroom to covenants as well. So they're both relevant at present, but the balance sheet one is the one that we have the target towards and probably the more relevant one going forward.
Richard Jones: Okay. And can you clarify how much capital was released from the ALE debt facility being put in place?
Erin Kent: Yes, sure. Richard, there was about $340 million representing CLW's 50% share released back to balance sheet.
Richard Jones: And just on the Coles DC acquisition, what was the yield on cost on that? And what are the fixed escalators?
Avi Anger: Yes. Look, Richard, we're limited in the information we can provide on that given it is commercial in confidence between us and Coles. So we could only provide at this point the information that we've given in the presentation.
Richard Jones: Okay. And then --
Avi Anger: Suffice to say, I can say though, what I can say, Richard, is that it is accretive to us. So the yield at which we sold our existing Coles facility is lower than the yield on which the yield on cost will achieve through this development. So it's accretive in that sense. And the rent reviews are also better than what we've got.
Operator: Our next question comes from the line of Simon Chan with Morgan Stanley.
Simon Chan: A couple of simple ones. So what's your average debt margin across your portfolio now that you've done all this debt restructuring, jamming stuff into the ALE level, et cetera?
Erin Kent: Simon, our all-in margin across the entire platform has come down closer to 140 basis points.
Simon Chan: And what's the quantum of savings there relative to before all these activities?
Erin Kent: We're sitting at around 145 before the restructuring to the JVs.
Avi Anger: It's been coming down [indiscernible]. It's -- we were at 150, then 145, now 140. And I think we are seeing competitive margins from the banks. Our treasury team has done a great job at being able to secure and refinance our facilities at attractive margins. So at the moment, based on other discussions that are going on, I wouldn't be surprised to see that coming down. So yes, we've got some headwinds with rates, but I think we've got a little bit of tailwinds as well with those margins. So yes, that's sort of the way we're seeing things at the moment.
Simon Chan: If you reckon it could head towards like 120 like as low as some of your other stable banks or because the asset class is different, we should hold you to the same benchmark?
Avi Anger: Well, I don't want to be held to numbers at this point, but I think we can -- as I mentioned, I think I'd like to see that number coming down going forward, but we'll keep working with our treasury team and hopefully can deliver some positive news in future results periods.
Simon Chan: Look forward to that one. Can we -- can you give me a bit of a color on this long WALE office partnership? Like what's the rationale there? I mean $17 million is not exactly a huge number. Like is there a strategic reason for owning the stake? And also, what is this fund? Because from memory, 275 George and 10 Franklin were assets that were in CHOT2 right? So is this partnership more of a fund-of-fund style investment?
Avi Anger: No. Look, I'll give you the background to this. So there's a few questions in your -- in that sort of what you've just said, so I'll try and sort of separate them out. So the rationale is that we believe that long lease, modern, high-quality core CBD office is going to perform very well going forward. We've seen cap rates expand and unlike other sectors haven't started contracting yet. We see very strong tenant demand for that type of office, which is different to, say, other less desirable types of office product. So we're very -- we see a lot of upside going forward in sort of modern core CBD, long WALE office. The WALE of this portfolio fits what we're about, given it's sort of an 18-year portfolio WALE with some of the properties -- the 2 largest investments in that portfolio having close to 30-year WALE. So that ticks the WALE box for us. We would have liked to make a larger investment in that partnership. We're somewhat limited at present, but it's something we can look at in the future, and we're able to secure a position that we can build on given that some of it is owned still by Charter Hall Group. And that's sort of the thesis behind it. Is it -- do I miss -- I may have missed part of the question, but I think that covers most of it.
Simon Chan: Yes, that covers most. The other part is just in relation to 275 George and 10 Franklin. I thought they were actually CHOT2 assets.
Avi Anger: No. So this is one -- that's part of it and then part of it is owned in this vehicle. But I might just say that it is -- those 2 assets are the smallest interests in the portfolio, and they probably represent not even -- not about 15% of the overall. So they're pretty small. The largest 2 assets in the portfolio -- sort of 60% of the portfolio is made up of an interest in 52 Martin Place, which is a 30-year WALE to New South Wales government and 140 Lonsdale in Melbourne, which is a 20 -- 27-year WALE remaining to Australian Federal Police. So that gives you a bit more color around the portfolio. The -- by far, the largest weightings to those -- that flavor of asset as opposed to the 2 you've mentioned.
Simon Chan: And just one more for me. Telstra Canberra, what's the latest there?
Avi Anger: Well, as we mentioned previously, they're vacating. We secured a 6-month extension with them over part of the building. So they'll start vacating part of the building in the next month or 2 and then the balance at the end of the year, and we've been active in the market talking to potential tenants. And we had -- we're having good dialogue with tenants on that building, and we've had good interest. What's good about that property is that it's a good size for Canberra being about 14,000-odd square meters in the heart of the Canberra CBD. It's a very prominent corner location right next to the Canberra center, which is the largest sort of best quality regional mall in the ACT. And it's probably -- that area is probably considered the CBD of Canberra. So we've got interest from both private and government type tenants. And I'm hopeful that we can provide some more updates on progress on leasing at our next results. But I'm encouraged by the interest we're seeing.
Operator: Please standby for our next question. Our next question comes from the line of Daniel Lees with Jarden.
Daniel Lees: I just got a question on the ALE portfolio. Can you just give us a sense of how under-rented that portfolio is today and perhaps if you've got any potential to bring the negotiation forward?
Avi Anger: Yes. Sure, Daniel. Look, as we've mentioned previously, at the time of acquisition, the LEP trust that we acquired had come out to the market and said that their view was the portfolio was about 30% under-rented. We haven't come out with a number. We -- although we can -- we're very strongly of the view that it's improved from when we acquired the portfolio. So that's probably increased. But we're not going to give our number because that's going to be a negotiation that we're going to have to enter into with the Endeavour Group when the market review comes up in November 2028. So we are -- it's significantly under-rented, and we'll work towards that market review in November '28. Bringing it forward, there's no active dialogue in relation to that, but we're open to discussions if they were to eventuate.
Daniel Lees: And just on the Department of Defense in Canberra, any news in your strategy there? Any approach for the shorter WALE lease assets there and what you're doing about it?
Avi Anger: Yes. I mean the approach there was always to work with that tenant. We're a long lease REIT, so to work with the tenant to keep them in occupation and extend the lease. So that's the strategy, and that's what we'll be working towards.
Operator: Our next question comes from the line of Solomon Zhang with UBS.
Solomon Zhang: [indiscernible]. Maybe a question for Erin. It's good to see the lift in hedging and it looks like you're sort of swapped or hedged at the mid-3 range. Just wanted to confirm, did you pay any capital for the swaps in the period? The reason I ask, I can see a reference to payment in the derivative financial instruments in the cash flow statement, but it hasn't been separately split out.
Erin Kent: Solomon, yes, there were some usual swap execution costs, although these are minimal. And I think as you've noticed, our hedge rates have increased to delay -- due to us layering in close to market-based swap rates. So it's very immaterial in the period.
Avi Anger: Yes, you'll see in our -- if you compare the swap charts from last period to this period, you see the rates gone up. So that reflects the market, right?
Solomon Zhang: Yes. So it was pretty immaterial in terms of the size of the amounts paid. Could you quantify it?
Avi Anger: Yes, they were just the amounts we would need to pay in terms of upfront and execution costs that we would ordinarily incur.
Solomon Zhang: Yes. And maybe just phasing of the new Coles DC CapEx. Could you just talk to that?
Avi Anger: Sorry, what was it -- can you repeat the question?
Solomon Zhang: The phasing of the new distribution center, CoreWest. So could you just talk to how the phasing of the CapEx?
Avi Anger: Yes, yes.
Solomon Zhang: Looks like in the next few years.
Avi Anger: Sure, sure. So that's going to complete in 2027. So over the next 1.5 years, we -- it's about half -- we're about halfway there. So we've contributed about half of the $220 million to date. And then over the next 18 to 24 months, we'll fund the balance.
Operator: Please standby for our next question. Our next question comes from the line of Suraj Nebhani of Citi.
Suraj Nebhani: Maybe one question for Erin first. Just on this ALE facility. Is it fair to say that essentially that puts the gearing out of the balance sheet into the joint venture? Is that the way to think of it? And then what happens with the capital that comes back? Are you paying down debt at the balance sheet level?
Erin Kent: Yes. Suraj, this facility was within that joint venture structure. So it did result in a reduction in our balance sheet debt drawn number and it also reduces our investments in JVs line within total assets as this is now a share of a net JV investment number rather than a gross.
Suraj Nebhani: That makes sense. And I guess just one question, Avi, for you on the development asset with Coles. Obviously, you acquired on a non-completion basis over here. Are you looking at more such deals in the future? And how do you think about the appetite that you guys have and the capacity from a balance sheet perspective?
Avi Anger: Yes. I mean, as you know, Suraj, we're always looking for sale and leaseback or long WALE deals like this. It's been a large part of what we've done since we listed almost 10 years ago. So it's very much on our radar. How we fund those deals going forward is going to be a combination, as you've seen, [ of ] recycling as we've done in this instance, where we've taken an asset that's sort of an older one with a shorter WALE, and we're able to recycle the proceeds of that into this. We'll look at opportunities like that. And we'll also -- as time passes and the market inevitably moves in cycles, we'll hopefully get back to a point in the not-too-distant future, where we can grow through actively raising capital. But we'll -- both those sources of funding new deals are available to us. So yes, look, it's -- and we're very fortunate that as part of the Charter Hall Group, we get access to those type of deals. That's not a deal that was available on market. That was something that Charter Hall was able to negotiate and secure given our relationships with the likes of Coles. So we'll continue to look at deals like that, and we're fortunate to have the opportunity to do those.
Suraj Nebhani: And one final one, Avi. There were some comments -- I mean, there's obviously a chart in the presentation around the attractive distribution yield. I agree, 7%, almost 7% is a very good yield. I guess, if you look at it on a price to NTA basis as well, the stock is obviously pricing a big discount to NTA, which is going into the yield number. But do you -- as a management team, I guess, from your perspective, how are you thinking about being able to close that discount? I know in the past, you resort to a $50 million buyback as well. Is that on the cards or some other measures that you can take?
Avi Anger: Yes. Look, I think at the moment, we're in a volatile market. A few -- not that long ago, only a few months ago, we were $4.70 and now with circa $3.75 or $3.80. The price is jumping around a lot. It's volatile interest rate environment is impacting that. I'm hopeful it's short term, as you say, it's a very attractive distribution yield. It's a large discount to NTA. And I think performance and delivering on earnings, delivering on earnings growth, that's the way we're going to keep delivering value for investors and close that gap. But that's -- and that's what we're focused on. We don't -- there's no intention at this point for -- to do a buyback.
Operator: Standby for our next question. Our next question comes from the line of Ben Brayshaw with Barrenjoey.
Benjamin Brayshaw: Av, just on the DC you acquired in Truganina, I just want to, I guess, clarify, will Coles be relocating out of the building that you previously owned? Or is it a new requirement that will support the lease for the fund through?
Avi Anger: Yes. I'm not aware of what their intentions are for the building that we've divested. They still have close to 7 years on that lease and it's a growing business. They may well -- I don't know, but they may well retain that and use the new one. But I'm not privy to that information.
Benjamin Brayshaw: No problem. And just on the pricing achieved for the sale, are you able to clarify how that compared with the book value at 30 June prior to the transaction?
Avi Anger: It was at -- at book value.
Operator: Please standby for our next question. Our next question comes from the line of David Pobucky with Macquarie Group.
David Pobucky: Just one follow-up on look-through gearing, which is now at 41%. Are you able to provide where covenants sit? And does that level and the fact that rates have moved higher constrain your ability to acquire for growth without continuing to divest lower-yielding assets?
Avi Anger: So David, in terms of where our covenant sits, the current target -- sorry, the current covenant is 50%, and there's sufficient headroom there, particularly what we're seeing with valuations increase, and we expect notwithstanding movements in interest rates, I think cap rates have stabilized, and we have rental growth year-on-year coming through the portfolio that should continue to drive valuation growth. We're very comfortable with where we sit on that front. But in terms of new acquisitions, we need to, as I mentioned earlier, recycle or look at points in the market and the cycle, where we can continue to grow through equity raisings or something like that. But there's no intention at this stage to do more debt-funded acquisitions if that's the -- that's the question.
David Pobucky: And just a follow-up on the Coles DC as well. What's the development risk? Is there a construction or income guarantee, builders coupon, anything of the like?
Avi Anger: It's just a straight construction of a facility that's 100% precommitted to Coles. We have a builder delivering the facility. The vast majority of risk has been absorbed by the builder. So that's how we would usually structure those type of deals.
David Pobucky: And just one final one around guidance. Are you able to provide what weighted average cost of debt is in guidance? And has that changed since the start of the year given the debt initiatives you completed?
Avi Anger: The weighted average cost of debt remained -- the guidance hasn't changed. So we've reaffirmed guidance today. So the weighted average cost of debt is as per pack. Yes.
Erin Kent: Yes. So we expect over FY '26, we'll be at around that 4.4%, and that doesn't move much from 31 December, given we've just rolled our March quarter debt at 3.8% floating, and we've assumed market floating rates over that last quarter. And the hedge percentage is obviously outlined in the pack as well.
Operator: [Operator Instructions] Please standby for our next question. Our next question comes from the line of Winky Tan with Morningstar.
Yingqi Tan: Just a very quick one for me. Would you be able to share your interest coverage ratio as of December 31?
Erin Kent: Yes, sure. Winky, our ICR was sitting at about 2.9x at 31 December.
Operator: Please standby for our next question. Our next question comes from the line of Peter Davidson with Pendal.
Peter Davidson: Just a quick question on this CoreWest at Truganina. Is that an Ocado facility or the previous one was Ocado? What's the purpose of that Coles DC? Is it to home or is it to shops?
Avi Anger: Yes. No, it's not Ocado. This one is to shop, so it services their network, their main Victorian distribution center, but it will be fully automated, that type of structure like the current breed of DCs.
Peter Davidson: The second one, Avi, I just noticed your comments about BP nominating a couple of service station sites that they were quite happy to sell. The question is, do you go through them yourselves as well with a sort of fine-tooth comb just to find whether you can -- there's a few assets you could sell perhaps well above book and just incrementally increase returns to shareholders.
Avi Anger: So -- yes, the way it works, Pete, and you may have noticed in our results, there's usually every results period, there's a couple of small surveys that we announced that we've sold. And the way that works is BP, given if we're in a joint venture with them, they'll come to us and identify assets that they believe are non-core to the portfolio that the joint venture wants to sell, and we do that and we have made whole. So we don't -- we're not left with -- but we're very happy with the portfolio, and we're happy with the WALE. And so long as BP is happy with those -- the sites, then we continue to own them long term and the ones that they want to curate, we're happy to participate along with them. And as part of the deal, we're no worse off.
Peter Davidson: Same question again for the Endeavour relationship, the old LEP portfolio. I mean, do you go through that portfolio and identify sites because a lot of that's supported by bottle shop sales, but bottle shop sales are more difficult now than they used to be. It's a weaker market than it used to be. So do you go through and identify potential sites there, which you might be able to perhaps realize, make the portfolio a bit smaller, increase the returns, sell above book value.
Avi Anger: Yes. I mean, we have done. And as just reported today, there was one asset, where we received an offer well above book and decided to sell, and that happens from time to time. We're more than happy to look at that. And yes, we're happy to -- but otherwise, longer term, we think there's a lot of value in the portfolio. Unless we get an offer well above book that's -- then we want to own these assets and continue to benefit and enjoy the strong rental growth and the growth in underlying land value. And particularly in the case of the ALE portfolio, we've got a big rent reversion coming. So we're not really inclined to want to give that away. So we just keep working towards that.
Peter Davidson: Okay. And then just last one for Erin. Just is there any opportunity for margins to come down Erin, in this portfolio? I know that rates are going up in the background, and we've probably got a couple of rate hikes coming. But what about the margin, the margin outlook?
Erin Kent: Yes, sure. Peter, so credit spreads are at cyclical lows and the bank and loan markets do remain highly constructive with strong support received for assets like CLW's portfolio. The Charter Hall team, I think, as Avi mentioned earlier, very active in driving these refinancing opportunities to try and capture some of the favorable margins in the current environment. So yes, that's definitely a priority.
Peter Davidson: And what sort of savings might you capture? So you captured 20 points would -- what impact -- so 20 points lower margin. How would that sort of play out in terms of borrowing costs? Is it all in 1 year? Or is it going to be staggered over time? Or how do people factor that in?
Avi Anger: Well, if we were able to renegotiate debt facilities that typically -- that would become applicable straight away. So yes, I mean, if we did the whole $2.5 billion of debt and renegotiated it all in the next few months, then yes, you could realize that the way you're looking, it's correct. But it just depends how quickly we can work through the book and renegotiate facilities.
Peter Davidson: Yes. So I mean that's really the question, Avi, it's just like how would it actually play out within the portfolio, you might do it piece by piece as each fund matures.
Avi Anger: Correct. I mean we've just done ALE, and that was a favorable outcome. And we'll continue to work with our treasury team to look across the portfolio and identify opportunities for further savings.
Operator: Please standby for our next question. We have a follow-up question from the line of Ben Brayshaw with Barrenjoey.
Benjamin Brayshaw: Avi, thanks for taking my follow-up question. Just wanted to go back to our discussion earlier on the Coles DC in Truganina. The book value in the presentation, just gone back and checked that June was $75.9 million versus the transaction price in the accounts of $71.4 million. So I just wanted to clarify, I think you indicated that the transaction went through at book. But just by way of that comparison, it would appear to be about 6% below.
Avi Anger: Below June book, not December book.
Benjamin Brayshaw: That's right, below June book.
Avi Anger: Yes. But I'm saying that there was a valuation at the time the transaction was undertaken. So we -- that was -- that valuation stale being almost 8 months old. So the most recent valuation that was done on the property was the price at which the transaction occurred.
Benjamin Brayshaw: So you marked it down.
Avi Anger: [indiscernible] the value down. Yes. Because as the WALE comes down on that asset, the valuation was impacted and there was a bit of cap rate movement as well.
Operator: Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Avi for closing remarks.
Avi Anger: Thanks, everyone. Appreciate your time today and for joining the call, and we look forward to catching up with you in one-on-one meetings in the coming days and weeks. Thank you.