CLW's reporting date is either tomorrow (Monday) or Tuesday,...

CLW's reporting date is either tomorrow (Monday) or Tuesday, depending on which website or reporting calendar you look at. I am looking forward it.

I am starting to agree with the view that distributions could fall ten per cent. My thought is: so what?! If NTA falls ten percent as well, it is still well above our current unit price. This fall would put our NTA at $5.50 with a distribution of approx. 6.2%. No problem.

Every analyst recommendation I look at says either 'Buy' or 'Hold'. Not that I put much faith in their judgement, but it's nice to see, I suppose. The big question is whether this 10% haircut is factored into the price right now. In other words, if our report is this pessimistic, will the unit price fall heavily? I suspect the bad news is indeed factored in, and then some. Of course the unit price could fall, but at $4.46 there is a decent margin of safety if I were buying for the first time.

Until a few weeks ago the biggest holding in my portfolio was CLW's sister REIT, CQE. I sold a third after the price had substantially recovered, and the remaining 2/3rds is now my second-biggest holding. The comparison with CLW is telling. Both REITs have 100% occupancy, no exposure to non-discretionary retail, Charter Hall management, and 15 year WALEs. CQE's distribution yield is only 4.5%, is only 5% off its unaudited NTA, with no growth forecast on Commsec over the next couple of years and still-rising interest rates. Yet the unit price recovery over the past few months has been spectacular -- bottom left to top right. In comparison, CLW has flat-lined. I cannot understand it. Sure, CQE has less debt but the difference is puzzling. Both REITs feature very defensive assets. Either one is under-valued or the other is over-valued.



At some point, I expect CLW to out-perform. It really is just a waiting game. Its assets are too good and the yield is too high to languish indefinitely. And hopefully, we have the ability to re-invest future distributions. Do not be seduced into thinking that because Sydney and Melbourne metropolitan residential real estate prices have fallen, that commercial property will fall in tandem. The commercial and residential markets are different. A house is just another three bedroom, one bathroom dwelling, but top tier commercial real estate in prime locations is very difficult to replicate. Inflation will increase rents, but it is also increasing the replacement cost of defensive properties which remain in high demand.

I was skeptical about our 50% interest in the purchase of a pub portfolio (ALE property group) however I've read articles in the Financial Review and The Australian extolling the strength in pub valuations. The rents are, I think it was said, 30% less than they should be. In perhaps two or three years' time, the anticipated new contracts will start to be factored into forward-looking guidance. A decades-old pub, in prime position, with long-term tenant and brand recognition ("Hey guys, let's meet at the X hotel tonight for a few drinks") is irreplaceable.



The bottom line for me is that I am definitely not buying (my preferred) CQE social infrastructure REIT at this level. I would be comfortable topping-up CLW at $4.46, however I'm not rushing in to over expose myself to the real estate further. If we drop to the very low $4.00s the risk vs. reward equation looks compelling and I'd have a nibble.

In the meantime, if I were forced to purchase a property stock today, I'd buy CHC, the CLW parent company. It's on a 3.2% yield, with franking credits, a 13 year history of increasing dividends, and if/when it returns to its 12 month high (when interest rates start to fall again) it will be up 75%+ on today's share price. In my opinion, there's money to be made at these prices in CLW. There's a lot more to be made (with admittedly higher risk) elsewhere.