Ann: CLW 2023 Half Year Results Presentation, page-31

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petertanaka

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19/03/23

04:20

Post #: 66842773
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Originally posted by pete11: ↑

i was wondering can someone please work out if our dividend is sustainable in relation to out FFO , but adjusted for CAPEX, is there any way to work this out? i just found an interesting article why so many REITS are not as good value as they seem because people think the divvy is sustainable but they dont take into account the CAPEX required , they just look at the dividend payout ratio and they think its covered quite well, but they dont take into account the CAPEX the company needs every year here is the article

,Yet, I almost lost it all.What did I miss?I made one major mistake:I underestimated the company's leverage because I overlooked the impact of capex spending. I thought that the company's payout was safe because the dividend only represented about 50% of its FFO.But adjusted for capex, the dividend was poorly covered and the leverage was excessive relative to its free cash flow.The capex went into improving the malls and so it misled me into thinking that it was optional and could be reduced if needed.But the reality is that these malls were struggling and if they stopped spending the capex, these malls could quickly end up in a death spiral.The consequence of this is that CBL's balance sheet was too weak to endure the pandemic. The company had already cut its dividend and later it fully eliminated it, but even that wasn't enough as its tenants began to miss rent payments and it drove the company into bankruptcy.What are the lessons here?There are three main lessons:Lesson #1: Capex should not be underappreciated. It has a major impact on leverage and financial flexibility. Not all capex is optional and in the case of malls, it was critical to their survival. The same applies today to office buildings today! We think that investors are commonly overlooking capex and as a result, they overestimate the free cash flow generation potential of discounted office REITs like SL Green (SLG) and Vornado Realty (VNO). They are priced at very low FFO multiples, but once you account for capex, the multiples aren't as low as they may

seem.https://seekingalpha.com/article/4586564-my-worst-reit-investment-of-all-time

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52% of their properties are triple net leases which means the tenant are responsible for all outgoing/capex and maintenance...

the remaining 48%, I would think will require little Capex, commercial leases usually don't require landlord to make huge capex, with CLW's long WALE and the quality of their buildings, I would assume capex will be very minimal.

the example you have given is when major capex are required to attract and retain tenants, this is especially required in a recession as the competition of tenants are fierce with high vacancies... this is not the case with CLW, in fact, it is the opposite..

CLW Price at posting: $4.36 Sentiment: Hold Disclosure: Held
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Ann: CLW 2023 Half Year Results Presentation, page-31

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Ann: CLW 2023 Half Year Results Presentation, page-31

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