Ann: Dividend/Distribution - CLW, page-11

People tend to feel good and safe when they see their investment go up in value and vice versa …. I look at the price movement and think if risks are reflected in the price when i invest…

I don’t think banks are the right place to be at the moment, they have performed strongly over the past year or 2 and a lot of optimism are built into their share price… where as reits are exactly opposite… a lot of risk are built into their share price… this is not to say clw are exceptional value and safe… market most of the time are efficient and the risks with reits are very real and possible…

some of the biggest risks I see with clw are:

1) more interest rate hikes: which will obviously bite into their earning as every 1% rise in rate will decrease their earnings by 20mil. However, they do have 70% of their portfolio hedged until a few years later and we can only hope at that time rate will be lower than it is now or roughly the same, which will be ok for clw as their rent increases will offset some of the interest rate rise. They can also sell some properties to reduce gearing

2) recession: I don’t see how this will affect their cash flow as they have top notch tenants and long wale, rent will be collected if there is a recession… actually recession will be good for clw as the interest rate will most likely drop to stimulate the economy

3) drop in property value: this is interesting and can go either ways, we have rate increase which will push down value but we also have building cost escalating which will dampen supply and put a floor on value. By looking at the recent transactions in the unlisted market, clw properties can still sell above book value.

4) breaching covenants and needing to raise capital: this is the last thing we want from clw, it will destroy shareholder value. Trading at such discount to nta and already high gearing I would imagine this is not something charterhall will be willing to do, sell some properties will be a much better option. If this does happen it will be a very serious lesson for me and I will just go full index from now on and never touch reits again.

5) dividends cut: I think we are safe for the next couple
of years since their rates are hedged. But shall see after next year when things clear up more in terms of rate movements and also their capital management. I would imagine cutting dividend is the very last thing they want to do. I can however accept a temporary cut in dividend.

certainly a lot of uncertainties with clw and hence why it’s trading at such discount, however, I think it’s safer than the banks.

lastly, from a news article today:

Looking more closely at the commercial property market, albeit from a different angle, if the existing property valuations are indeed to be believed, then the listed A-REIT market must be offering great value for a long-term investor, given they are trading at such large discounts to their stated net asset values,” Sammut said.“Therein lies the dilemma. Are the values real? The market has taken the view that they are not.

it summaries my thoughts…. Seems like compelling value but market don’t seem to believe the value is real