BobGe wrote:BondSquared wrote:CLI SP needs to touch new lows for me to get involved.
Just CLI or real estate more generally, commercial or otherwise?
Commercial real estate more generally.
Specific to CLI, which I consider a well-run company, I am somewhat bewildered by the fact that CLI's last property sales in 2023 were at -13.1% vs book valuation, when the declared reasoning behind it was a very modest opportunistic reduction in leverage/debt funding. For opportunistic selling you usually pick the easiest properties to sell, which would suggest that the real pain trades are possibly still ahead. CLI's refinancing requirements are again rather modest on paper (i.e. rolling over maturing loans) and not something that would usually raise concerns, but if the market/bank sentiment turns towards stricter enforcement of breaches of loan covenants then the picture can change quite dramatically, as loans unexpectedly come due years before their scheduled maturity. As mentioned by others, it's crucial to find out why those properties - and, while still a rather small part of the portfolio, it was
4 properties, i.e. not just a single rotten apple - were chosen. There can, of course, be good strategic reasons, but the sale was agreed at 13.1%
below half-year valuation, i.e. vs 30Jun23 books, so this last valuation will have been only a few weeks or months old at the time of the sale (compared to the other previous 2023 sale at +1.2% vs valuation, which seem to have occured compared to YE22 valuation; no mentioning of
half-year valuation). There's either a good idiosyncratic reason behind it, or a terrible trajectory, or a case of gross over-interpretation (probably all 3).
That all sounds very negative, but in general I do see value in this sector, it's just the usual case of not catching a falling knive before it hits the ground. Seems to me the ground is a bit lower than previously thought.