@cuprous99 Yeah, that's the trouble with REITS...the addiction to the attractive-looking yield despite obvious headwinds. The false idea that the higher yield acts as a buffer to a falling unit price. I think it's a psychological problem -- the mirage of feeling safer by holding real, tangible assets (buildings and land that you can physically visit) as opposed to, say, tech stocks, even if in reality, it's anything but safe. Eight plus percent yields and a 40% discount to NTA is looking very appealing at the moment now though!!! Oh dear
I should have sold at a small loss at $4.00. However I am also pleased with myself for not having chased the share price lower with more parcels bought along the way -- increasing my position and risk as CLW looks increasingly cheaper. Doing nothing is difficult; particularly when the price is falling. I'm not so arrogant or confident to think that the horrible-looking unit price chart will start trending upwards simply because Mr. Market knows that Mr. Desertredlion has bought more.
What I learned from 2007-9 and 2016 is to NOT be over-exposed to REITs, be willing to re-invest distributions and top-up conservatively at lower levels and take a genuine LONG term approach and block-out the noise. With a few exceptions, the REIT (and banking) industry in Australia learnt a lot from the GFC and almost all ASX REITs are pretty conservatively managed. I remember the REIT I held during the GFC had been buying malls in Poland because apparently it was 'a great opportunity'. Maybe it was, and those malls were ultimately sold at, or above NTA, from memory as the fund decided to concentrate on its Australian assets. Blind Freddy at the time could have seen it was risky empire building. In hindsight, it was absolutely ridiculous. For an ASX-listed REIT holding suburban and regional malls to be buying malls in Poland... I was too stupid to see it as a red flag. It was eventually sold to Charter Hall and became today's CQR. If CQR were yielding 20% with zero debt, a single digit PE ratio and strong forecasted growth I still couldn't (psychologically) own it today. Never again!
It can take months and months to negotiate and finalise the sale/purchase of commercial property. I wouldn't be surprised if CLW is in the process of disposing of a few properties as I type this today. An asset sale or two would make a big difference to CLW's gearing levels.
Please do not take any advice from me though. My record with REITs is nothing to brag about, and my only strategy is being prepared to buy-and-hold, taking a smallish position and trying to ride-out the cycle with an ultra-long term approach. It's not much of a plan. The only assurance is that if you take a position or top-up, the unit price is very likely to fall further in the short-term.
The following quotes may help to put the current situation into perspective:
The Financial Review, 28th September 2023 Soaring bonds, tumbling REITs put pressureon property values
"For specialist property investors, there is still much appeal in REITs, given they have mostly factored in higher-for-longer environment in their forecasts for earnings growth. For me (Pengana Capital portfolio manager) as a REIT investor, if you’re looking forward, now is the best time to be in the sector because they have already accounted for the higher for longer environment.It’s the generalists who are selling and giving up on the sector. They are giving up on the sector just when they should be in the sector.”
The Financial Review, 26th September 2023 The commercial property shakeout is only halfway done
"Steinberg (Dexus CEO) says the property sector is halfway through what he believes will be two years of headwinds for the office market, and commercial property more broadly. Real estate is a cyclical business – it always has been and always will be,” he says. He expects the process of valuations adjusting to higher interest rates will play out further over the next 12 months as more landlords sell".
The Financial Review, 17th August 2023 Debt headwinds smash some REITs - but not others
"Rent – top-line income – has held up well. In fact, leases with rent increases linked to CPI have delivered solid rental growth. A number of investors in externally managed REITs will find their payout has gone down, while their manager is earning more. CLW investors will suffer a near 15 per cent decline in distributions over the two financial years 2023-2024.
CLW’s property income, boosted by CPI-linked leases and acquisitions, grew by $31million last financial year but was wiped out by a $35 million increase in finance costs and operating expenses, as gearing rose over 40 per cent and the weighted average cost of debt jumped from 2.8 per cent to 3.9 per cent."
The Financial Review, 8th August 2023 Charter Hall fund flags asset sales as gearing rises
“We recognise that in the short term, there’d be some benefit in potentially some asset sales. So, we’re certainly looking at that. And that could come from a broad range across our portfolio,” Mr Anger told analysts on Tuesday.“Absolutely, asset sales will be used to retire debt in the short term.”
“We’ve still got a very good buffer to where covenants sit. Asset values [would] need to decline a lot more than what we saw recently for us to be anywhere near covenants,” he said. “We are looking at some divestments. There are a couple of things we are progressed on at the moment. [They are] still very conditional. It’s something we’re looking at making some progress towards in the coming months. But having said that, we’re comfortable with where we sit at the moment and where we are relative to covenants”.
CLW Annual Report, August 2023
"CLW currently trades at a discount to its NTA, a situation which is unlikely to change until there is greater clarity on the outlook of interest rates. If and when markets form the view that the interest rate cycle has peaked, historically such discounts have unwound. The board remains open to exploring all avenues to reducing this discount." (pg. 9)
"We will endeavour to continue to provide you with stable and secure income, and target income and capital growth over the long term." (pg. 11)
The Australian, 17th August 2023 'realcommercial' weekly supplement "Retail investors have probably read it negatively, Mr Sammut (Sequoia Asset Management) said. He said the listed sector was yet to face up to valuation problems even though most stocks have already sold off. It means there's more pain to come in terms of valuations, but their prices are reflecting that already, he said. There is some mistrust in terms of putting more money in -- you've got to have a level of conviction that the worst is over"
"While we think it is too early to be overweight REITs, we expect renewed investor interest heading into a rebated fiscal 2024 as income starts to look increasingly defensive and the ace of valuation declines slows into June 2024, UBS said." (pg. 7)
I hope this is of assistance and/or comfort to some investors.
CLW Price at posting:
$3.16 Sentiment: Buy Disclosure: Held
(20min delay)