CLW dropping, page-39

Has anyone actually done the numbers deeply on the CLW REIT?

Their JV portfolio (c. 40-50% of NTA) is at a weighted cap-rate of 4.3%, the 10-yr Aus Bond rate is 4.7%. In a +4% interest rate environment historically core property cap-rates have been 10yr Bond + 2.3%, this would imply cap-rates on core assets of 6.6%. Say that CLW's portfolio on average is better than the market so it might be at a 50bps cap-rate discount to the market average, this is a 6.1% average cap-rate. If its assets were to re-rate then this is a circa 31% write-down to the NTA. So, on a price-to-NTA basis it might suggest that the stock is fairly priced, not cheap.

However, this devaluation of their JV and 100% owned assets will see them breach their LVR covenant and. given they can't raise at a discount to NTA, this will force them to sell assets...and to ensure they sell as near NTA as possible they will sell their best assets leaving investors with the lower quality parts of the portfolio. They will not leave CLW investors with the prime assets you want to own, they'll seek to raise as much capital near NTA via asset sales to pay down debt and fund developments.

So, in combination with the hedging rolling off over the next few years I see the dividend dropping to 0.17 cents per share or below, meaning the yield may drop on the current share price to 5.25% as a result of sales to repay debt and increased interest rates. With the 15-year Aus Gov bonds at nearly 5%, with term deposits at 5.25-5.5% - I would expect there to be a bit of a spread here to take the risk.

This might suggest a required distribution or dividend yield of 6-6.5% to achieve a total return of 9-10% if rents are growing by 3% p.a.

All of the above would mean this looks like the stock is a buy at a margin below $2.85, another +10% to fall to look appealing in my book.