My average price for CLW is $4.64 according to my paper notebook (very old school). I can't believe it's fallen from $5.40-odd to $4.30 in what seems like a matter of weeks.
As far as REITs go this one is a pretty good place to be. It's on a 7.1% yield and that's before any rent increases due to CPI. The tenants are large corporate, non-discretionary entities (Ingham's facilities, petrol stations, Arnott's biscuit factories, pubs, etc.) and government. During Covid, rent collection was 100%. Non-payment of rent is not an issue.
I can see why REIT prices have fallen but not by this much. I also hold CQE which I think is a superior option however that's been smashed in past two weeks even worse than CLW. Not that there's been anywhere to hide in this current market.
My plan:
In my mind, the 7.6¢ dividend is simply a gift, coming straight off my average purchase price as free shares or free money every quarter. We're due a distribution in two weeks. Then again three months after that. Therefore, $0.15¢ (or more) off $4.64 in the space of 3½ months puts me below $4.50. My accountant might disagree with this calculation but in my mind anything l get from a company I invest in will reduce my original investment price by the exact amount I receive.
As long as distributions are maintained and not cancelled or are drastically cut, I can play that game for a long time. At some point (2nd half of 2023? That's only 12 months away...) L suspect we're in a mild recession and rates start to get cut. The world is in so much debt with countries and individuals owing so much that we don't need 15% interest rates to reduce inflation or slow growth. I imagine that by the time rates get to 2% growth and inflation will be strongly affected and there'll be talk of stimulating the economy. Tolerance for rate rises is very low due to how much everyone has borrowed.
The forward-looking market in mid-2023 starts to re-price REITs. The market pushes CLW back above $5.40 (still well below our NTA) with the prospect of rate cuts. By this stage my average purchase price is in the low-$4.00s with significantly more shares to my name.
Our present NTA is $5.85 and I expect an announcement any day now pushing it up over $6.00 with the six monthly revaluations. These usually come in mid-late June and December. Occupancy is almost 100%, gearing is manageable, WALE is 14 odd years. At some point the Endeavour pubs' undervalued rent situation gets resolved. I think it's 2027 until the contracts are up for renewal.
My 2007/8 story:
I held a REIT through the GFC. It was not a pleasant experience, or one l wish to repeat. It was my biggest holding by far, and at one point was down 90%. My position was way too big. I thought I was in something safe and looked on in shock/horror/disbelief as the price dropped each day; not knowing what to do. Many sleepless nights were had. Somehow, in the midst of the GFC, near the bottom of the crash, I put my last few thousand dollars of dry powder into the 90% discount shares to massively average down, then went overseas for a few years for work. I kept collecting the cheques every six months and didn't look at the Australian stock market again until 2015. To my incredible suprise the shares had recovered to be only 10% off my original investment price. And I'd been receiving/investing the distribution cheques since 2007. A large opportunity cost lost, but l didn't expect to see that money again.
l can't offer anyone here advice, so I'll offer some advice to a younger version of myself: Don't take a bloated, overweight position in CLW into a deteriorating market. If you're into CLW for tens of thousands of dollars and losing sleep over the fall to $4.21 then sell half tomorrow and take a modest tax loss. If the price goes to $5.00 soon, then great. If it goes to $3.50 you've got some dry powder to re-enter/average down in the coming months at a lower price with 8 or 9% yields. If you have to sell some at a 10% loss eat the loss NOW. There's a chance things will get worse before they improve. Nobody knew 2007/8 would be so bad, or that March 2020 would be so good. There are so many opportunities now in the market. I won't list them, aside from saying even CLW's parent company, CHC's share price has been cut in half! Turn on the distribution re-investment plan. Login to the registry today and set it up. You're getting more shares to average down for free AND they're at a discount (2%?) to the average market price, which effectively makes the 7.1% per annum distribution even higher. Set a price for buying more (another reason to not be overweight now) in case the market goes from bad to worse and shares are selling at a crazy price. Determine now what that crazy price is. Set-up an alert, with push notification, in Commsec for that price ($3.75? $3.50?) and have a nibble then. This way you're covering the upside and downside. You'll reap the rewards for this when (not if) inflation is crushed (it may well happen sooner than we expect) and rate rises disappear.
See the present situation as an opportunity to acquire more shares cheaply, not a disaster. When the inevitable rebound occurs you'll have a bigger position at a lower price. As Petertanaka suggested, in these situations, shares always over-react. They over-price on the way up, and are grossly over-sold on the way down as fear and emotion get in the way of logic.
I hope these words help some holders. Good luck to all CLW investors.
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