The gap between the NTA and share price is quite significant and...

The gap between the NTA and share price is quite significant and probably the widest I have seen since holding REITs, however, we are now also at a rate rising cycle which has not been experienced for a long time, so the concerns around REITs are justified IMO. The wide disconnect between the listed and unlisted market is quite compelling and it definitely seems like this REIT is trading at cheap valuation, the liquidity of share market makes price fluctuate more widely and hence it can be argued this is where opportunities can be found. However, this statement should be taken with a grain of salt. Market can be widely wrong sometimes but most of the time, it is right.

Overall the report is acceptable IMO, as predicted before the result announcement, a close to 10% cut in dividend, but this is well known and it will actually be a surprise if dividend weren't' cut.

some metrics that are pleasing includes the rise in NTA, Metcash extending their lease, new office contracts at Emeco and 50% of the leases will have CPI linked increase of 6% plus in FY23. Higher finance costs and predicted interest rate are obviously the drags on earnings.

WALE has actually decreased to 12 years, not a surprise give not many new leases/extensions are executed. One thing we should note though is the fact that hospitality/ALE pubs now forms a significant part of CLW's portfolio but its WALE of 9 years actually acts as a drag on the overall WALE of the portfolio. Given how well these pubs are located and people starting to return to pubs after CoVid, it will be extremely surprising if their leases are not renewed or extended. Pubs forms a significant part of Endeavour group and given the increasing cost of building/refurbishing these days, we can be fairly certain that this 9 year WALE will get extended. The fact that the market rent paid by the pubs are 30% below market is also encouraging and should provide us with surprises to the upside in income in the future.

Out of various REITs, I believe CLW is probably one of the most defensive and offers compelling value for the following reasons:

1. There are quite a lot of development potentials ( Metcash site/all Pubs land are underutilized) which will increase our rental income in the years ahead. Most of these sites are in prime/irreplaceable locations which will only be more valuable over time, unlike offices where you can only add value by refurbishing, the various properties we have in our portfolio offers greater options for developments on existing sites.

2. most of our debt are now hedged, which will act as a cushion should rate rise more

3. one of the longest WALE on the market, which will see us ride out of this cycle, plus the tenants are all prime blue chips with very little risk of default.

4. IMO, the most aggressive rate rises are over, sure there will be more rate rises in the years ahead but not at this rapid pace.

5. unlike other REITs, CLW has a greater diversification of loan source/lenders, this will give them more options when it comes to refinance and negotiation

6. Gearing is too high for my liking but I still think it is manageable, I would rather the management sell some non core assets at NTA and use that fund to pay off some debt.

7. Now that the management has a clearer picture of what is ahead ( i.e. more rate rises etc), we should see them making more sensible acquisitions, perhaps develop existing land holdings to enhance income etc. IMO, this year maybe the low point in income for CLW, it will either more sideways or up from now on

8. cost of building/refurbishing are escalating like crazy, this will restrain more supplies from coming onto the market, given the quality of our portfolio, I think we will see more value adding developments on our existing sites which will be more cost effective and earning accreditive

If I own direct commercial properties with gearing of 40% (quite low in the real world as most people are geared much higher) and rate rises by 2% in 12 months, I think I will just need to accept a temporary cut to my income, it is just part of the game and quite acceptable. Hence I also think their report is acceptable.