Friends, I never expected CLW to be in the low $3 range. The share price graph is insane -- it's not just low, but all-time lows. And by a wide margin. The 20th March 2020
Covid low was $3.89, compared with today's $3.18. So, I totally disregard share price predictions like, "It can't go any lower"; "It's a steal", etc. Oh yes, it can go lower. At the start of the year, US and Asian tech ETFs were looking very appealing and worth my consideration. At the moment, it's REITs and large cap ASX-listed healthcare stocks. The CLW discount to NTA ($5.86) is also insane. However, the distribution has fallen from 7.6 cents, to 7.0 to 6.5. All is clearly not well. How long until the distribution is 6.0 cents? I don't know. The
Market.watch website states that of 14 brokers covering the REIT, 5 have a "sell" recommendation and 9 have a "hold". "Buy" recommendations are nowhere to be found. It's been this way for months, so perhaps the recommendations were at $4.00+ and have not been recently updated.
I question how much these analysts know though, and how much it's guesswork or groupthink. One week you're reading there will be big copper, oil or lithium shortages and to
buy. The next week, you're seeing articles about large surpluses into the foreseeable future and to
sell. Not even the Fed and its hundreds of finance guru PhDs has any idea what inflation or rates is going to do next month, let alone next year.
Full disclosure: I hold small positions in CLW, but also CQE and HDN. No big bets on individual stocks; and always leaving room to purchase more at lower valuations. For the past month I've been slowly buying CHC, the Charter Hall real estate developer parent company -- which feels like better value than the pure REITs, which just hold the real estate assets. The market has smashed the C.H. REITs. CHC itself, and also my personal favourite, CQE (childcare and social infrastructure) which has usually been defensive on days/weeks when REITs have been falling. Not any more. It's very much out-of-favour.
Fortunately, my CLW holding is relatively small. Also, I perhaps unscientifically knock the 6.5 cents off my average purchase price each quarter to reduce my perception of what the unit owes me. I compare my investment with money hypothetically hidden under a mattress at 0% interest. It is mentally healthier when the market is falling
What I can't understand, is the sharp (and unrelenting) rise in US bond yields, given the fact Blind Freddy can see inflation has peaked / is falling, and rates have either peaked, or there is one (maybe two) rate rises left. Although nobody really knows, to be fair. Surely we've suffered almost the bulk of the rate increases and REIT price falls. You'd think we'd be closer to the end, than the beginning at this stage. And with the relentless immigration into Australia, the government has effectively gamed the system on recessions. Economy looking soft? No problem. Bring a few hundred thousand more migrants here. The building industry (more construction), large retailers (more sales), local councils (more rate payers) and governments (more taxpayers) all love it. GDP rises while per-capita GDP falls and individual people get poorer. A great sleight of hand trick by both major parties.
I started selling-down (ultimately) half my REITs and half my oil/gas stocks mid-to-late 2022. I'd bought in bad times and the situation a year ago was quite optimistic. As a result, I've had more cash than stocks for the past twelve plus months. I sometimes think it's easier to be fully invested all the time. If one is interested in the market and does a lot of research (as we probably all do), it takes a lot of discipline to avoid emotionally deploying that cash. Say, into CLW at $4.25; or $4.00; or $3.50, or $3.19. Because it simply
can't go any lower....can it...? Sitting on cash and saying 'no' to Mr. Market's offers each day takes its own toll. It can start to make one a bit gun shy after a while too.
Yours truly had much of his holding in one REIT back in '07 because it held supposedly
safe regional shopping mall properties. After the price fell from $2.30 to $2.00 following a distribution payment, I took a large position. There were always 10% pullbacks and the price always re-traced back upwards (to $2.30). Nobody knew it was the beginning of the Great Financial Crisis. Well, maybe Michael Burry knew, but he didn't tell me. At one point, in early 2009, it was 90% down. I bought more at various points, but it was like flushing money down the toilet. Somehow, after having given-up all hope, I put a couple of thousand dollars in at 20 cents, from memory; which amazingly doubled or tripled my holding (something ridiculous like that). I couldn't look at my shares account after that.
It turned out to be near the bottom and I had averaged down to well under $1.00. A few years, and some large distributions later, I sold at around break-even price (not including the distributions), but the emotional toll was heavy. Dilutions, no distributions for 12+ months, sleepless nights. I was stupid, stubborn, and lucky; and it could have been much worse if I'd sold and taken the loss. All through the process, the discount to NTA was enormous. In hindsight it was a buying opportunity, but the whole world was collapsing at the time.
Don't be like me. Do not go all-in on this REIT and think it's a wonderful opportunity. Read what
noomxx has been writing, and learn from someone who understands the financials of this sector. Please be careful with these REITs. The likes of SCG, VCX and HDN have suffered only comparatively modest falls; and for good reason. The 32% debt and 8% look-through debt (I don't really understand this. I think it relates to our joint venture
external debt for the 50% stake of the pub portfolio we bought with a superannuation fund) is a case of being exposed as swimming naked when the tide goes out, as a great investor from Nebraska once said.
That said, I bought a very small parcel yesterday. It was my first CLW purchase since the low 4.00s of perhaps 12 months ago. It has also taken ~ 6 months' distributions (12 cents) off my average price, without increasing my exposure very much at all. With a 40-odd percent discount to NTA, 100% occupancy, and 8.2% distribution, there is a compelling case for me to very cautiously buy more -- especially at $3.00 if we fall any further. I'm not a technical trader, but just looking at the graph, you'd be a brave investor to say 'this is the bottom'. Although, if I am not buying heavily at $3.18 and all-time lows, I question why that is, and whether I know what I am doing; and there's a case to be made there too! I am encouraged that
noomxx -- who has been warning against REITs for 12+ months -- is now slowly buying parcels of them (
this is not advice). And I feel there is so much pessimism, and so many worst-case scenarios already built into the price in the low $3.00s. What else is there, which is not currently known by the market, as of today? An impending capital raise? Revaluations of properties? That's why we're at $3.19 and not $4.19.
My goal is to cautiously get my average price down to the mid-to-high $3.00s and increase my quarterly payments, without deploying too much cash (which seems better-spent elsewhere). At some point, fundamentals will have to overtake sentiment. Rate rises will stop, there will be constant talk in the media demanding cuts (instead of the "will it increase again this month" narrative). NTA will fall further, but that fall will be modest (nowhere near $3.19). The cap raise issue will have come and gone. I'm more curious to see what happens next than concerned. Pick up a book or newspaper at any stage over the past 100 years and predictions of crashes and recessions abound. Peter Lynch often talks about this. Things can always get worse but we can only invest based on what we know right now.
I totally understand how anyone would not want to own CLW, but if you're not interested in buying at $3.20 purely on valuation grounds, you are probably never going to buy it anyway!
In another post, I'll collate some REIT and CLW quotes from a few articles I've read in the Financial Review and the CLW annual report. I have taken up enough of everyone's time here already.
(20min delay)
