Charter Hall Retail REIT (ASX:CQR): Leveraging Strategic Portfolio Curation and Strong Leasing Momentum for Sustainable Income Growth

In the ever-evolving retail landscape, Charter Hall Retail REIT (ASX:CQR) has emerged as a standout player by combining disciplined portfolio curation with a relentless focus on income-generating assets. Over the past two years, CQR has executed a series of strategic acquisitions and divestments that have not only refined its portfolio but also positioned it to capitalize on the surging demand for convenience retail services. With record leasing spreads, a near-perfect occupancy rate, and a tenant base anchored by high-quality, non-discretionary retailers, CQR is well-placed to deliver sustainable income growth in a sector poised for long-term expansion.

Strategic Portfolio Curation: A Blueprint for Resilience

CQR's approach to portfolio management is defined by its ability to identify and act on high-conviction opportunities while systematically divesting non-core assets. The 2025 Full Year Results underscore this discipline, with the REIT acquiring a $1.3 billion portfolio of 57 pub and accommodation assets through the privatisation of Hotel Property Investments Ltd (HPI). This acquisition, made in partnership with Hostplus, added assets with a weighted average lease term (WALE) of 8.9 years and a CPI-linked rent review structure, ensuring consistent income growth. The HPI portfolio's 4.9% valuation uplift since acquisition further validates CQR's ability to source undervalued assets with strong cash flow potential.

Complementing these large-scale moves, CQR has also extended its convenience retail footprint through targeted acquisitions. For instance, the $65 million purchase of Corio Village and Glebe Hill Village in 2025 reflects a strategic focus on high-yielding net-lease assets. These properties, leased to tenants like Woolworths and Coles, offer a 6.9% yield and align with CQR's broader goal of increasing its exposure to non-discretionary retail. Meanwhile, the divestment of Lake Macquarie Square and two Woolworths/Coles sites for a combined $144.4 million highlights CQR's willingness to shed underperforming assets to reinvest in higher-growth opportunities.

Leasing Momentum: A Catalyst for Income Growth

CQR's leasing performance in 2025 was nothing short of exceptional. The REIT reported record leasing spreads of 5.5%, driven by a 7.6% increase for new leases and a 4.9% uplift for renewals. This momentum is underpinned by a tenant base that now derives 61% of its rental income from major, creditworthy tenants such as Woolworths, Coles, and Wesfarmers. These tenants, which collectively account for 39% of the portfolio in convenience net-lease assets, benefit from long-term leases (average WALE of 9.3 years) and CPI-linked rent reviews, creating a predictable and inflation-protected income stream.

The REIT's occupancy rate of 98.9% is another testament to its portfolio's appeal. This high occupancy is not accidental but a result of active tenant engagement and a strategic shift toward non-discretionary retail. For example, CQR's focus on convenience retail—such as its 100% acquisitions of Ampol and Endeavour Group-leased assets—has reduced reliance on volatile discretionary sectors like apparel. This remixing strategy has already shown results: specialty tenant sales productivity hit $11,356 per square meter in FY25, with convenience retail tenants contributing disproportionately to this growth.

Sector Tailwinds and Risk Mitigation

The convenience retail sector itself is a powerful tailwind for CQR. With global convenience services projected to grow at a 6.95% CAGR through 2030, CQR's focus on this niche positions it to benefit from structural demand for fast, essential services. The sector's resilience is evident in the U.S., where convenience store revenue hit $48.7 billion in 2025, driven by innovations like contactless payments and expanded food offerings. CQR's portfolio, with its emphasis on CPI-linked leases and long-term tenancies, is uniquely positioned to capture these trends.

However, CQR is not without risks. Rising interest rates have pushed its weighted average cost of debt to 5.0%, and look-through gearing stands at 37.9%. Yet, the REIT's proactive capital management—such as refinancing the HPI debt platform at favorable terms—demonstrates its ability to navigate these challenges. Additionally, its 27.1% balance sheet gearing remains within prudent limits, supported by a diversified funding strategy and strong liquidity.

Investment Implications

For income-focused investors, CQR presents a compelling case. Its disciplined approach to portfolio curation has created a high-quality, asset-efficient portfolio with strong cash flow visibility. The combination of record leasing spreads, a near-perfect occupancy rate, and a tenant base insulated from discretionary spending makes CQR a rare long-term income play in a sector with structural growth. While risks like interest rate sensitivity and tenant mix adjustments exist, CQR's proactive management and strategic alignment with convenience retail trends suggest these challenges are manageable.

In a market where many REITs struggle to balance growth and stability, CQR's focus on non-discretionary retail and CPI-linked income offers a blueprint for sustainable performance. As the convenience retail sector continues to expand, CQR's disciplined execution and tenant-centric strategy position it to deliver consistent returns for unitholders.