The Charter Hall Long WALE REIT (ASX: CLW) unit price has been climbing this year, as the chart below shows. The market seemed to like the result that the real estate investment trust (REIT) reported, with investors pushing the share price higher by 5% in August to date.

Analysts from Macquarie Group Ltd (ASX: MQG) describe Charter Hall Long WALE REIT is a diversified REIT that's externally managed by Charter Hall Group (ASX: CHC). The portfolio is diversified across office, industrial and retail (pubs and hospitality) assets. Macquarie said the portfolio is characterised by assets on long leases, with fixed or CPI-linked (inflation) annual rental reviews.

What Macquarie likes about Charter Hall Long WALE REIT units

The broker said that the FY25 result was in line with expectations, with operating earnings of $178.6 million, in line with Macquarie's forecast of $178.7 million.

Rental income declined because of property divestments, but was above the broker's forecast of $298 million. However, operating expenses and finance costs was also higher than expected.

Macquarie noted that occupancy remained elevated at 99%, while the weighted average lease expiry (WALE) "moderated marginally" to 9.3 years, down from 9.7 years at December 2024. Only 4% of expiries are over the next two years, which provides "certainty on rental income".

The broker is also attracted to the defensive, blue-chip tenant base the business has, with 18% of rental income being from government tenants, along with several other large corporate leases including Endeavour Group Ltd (ASX: EDV), Telstra Group Ltd (ASX: TLS) and BP making up 48% of the other rental income. It also has exposure to consumer staples tenants such as Coles Group Ltd (ASX: COL) and Metcash Ltd (ASX: MTS) which have a 5% exposure each.  

Macquarie noted that Charter Hall Long WALE REIT has provided guidance of 2% growth of operating earnings per security (OEPS) to 25.5 cents, an increase of 2% year over year. This will fund a distribution of 25.5 cents per security. This is thanks to $17 million more net property income (NPI), $11 million more finance costs and $1 million of operating expenses.

The broker also said that acquisitions support growth after completion of the FY24 divestment program. It completed over $800 million in asset sales over the past couple of years, improving the portfolio's quality. This also helped reduce balance sheet concerns. It has made $229 million of acquisitions after the end of FY25, which includes tenants like the Department of Defence, the Australian Border Force and Geoscience.

The negatives

In terms of negatives, Macquarie noted that the 'look through' gearing remains elevated at 38.8%, though the balance sheet gearing decreased by 0.4 percentage points to 31.4%. The look-through gearing decreased approximately 0.2 percentage points (to 38.8%).

The broker noted that the REIT is comfortable with look through gearing at 40% because of a positive outlook for asset valuations.

Another negative for Macquarie was the pace of the rental growth. Due to the fact that a high proportion (55%) of its leases are CPI-linked, the group's weighted average rent review (WARR) was 3.1% in FY25, down from 4.3% in FY24 and 5.1% in FY23.

Is the Charter Hall Long WALE REIT unit price a buy?

Macquarie currently has an underperform rating on the business, meaning a sell. It has a price target of $3.62, implying the analysts think the REIT could fall 17% from here.

The broker concluded:            

CLW appears to be through the worst with the OEPS outlook improving. However, the stock is trading at a 7% discount to NTA of $4.59 which we believe is unattractive based on our bottom-up valuation including our expectation for some further cap rate expansion.