SINGAPORE (Apr 17): DBS Group Research is not overly worried about the local industrial REITs – AIM APAC REIT (AA REIT), Mapletree Logistics Trust (MLT) and Cache Logistics Trust (CacheLog Trust) – that have exposure to Hong Kong-listed CWT International (CWTI).
To recap, CWTI, controlled by Chinese conglomerate HNA Group which is facing liquidity challenges, on Tuesday announced that it has failed to pay accrued interests and fees to lenders totalling HK$63 million ($10.9 million) which have become due and payable under a HK$1.4 billion facility.
See: HK-listed CWT International defaults on loan interests and fees; 3 CWT-linked REITs could be hit
See also: HNA to face $3.1 bil liquidity crunch this quarter
As a default has occurred, the lenders have issued demands for immediate payment of the HK$1.4 billion principal and HK$63 million in interests and fees. Also, the default has triggered a cross default under a HK$766 million term loan facility granted by a lender to an undisclosed wholly owned subsidiary of CWTI.
If the amount was not repaid by 9.00am today, the lenders will have the right to enforce security and obtain possession of charged assets.
In a Tuesday report, lead analyst Derek Tan notes that the default is by the parent company, CWTI, which is a separate legal entity from the three REIT’s existing tenant, CWT.
After speaking to the selected REIT managers, Tan do not anticipate major disruptions for now.
The three REITs have also separately released announcements on Tuesday night saying that CWT has so far not defaulted on its rental payments under their respective lease agreements.
The REITs all hold security deposits ranging three to six months of rental from CWT, which the analyst believes shields them from near-term income disruptions while remarketing the space.
See: AA REIT, CacheLog and MapletreeLog say no default on rents so far by tenant CWT
“From a risk management perspective however, we observe that most of the affected REITs have been paring down their exposure to CWT in recent years to mitigate ‘over-exposure’ to a single tenant,” says Tan.
Notably, CacheLog Trust has converted its master-leases across various warehouses to multi-tenancies, transacting directly with the underlying tenants instead, while AA REIT has been paring down its exposure to CWT by adopting a partial (as opposed to full) master-leased structure at selected assets as leases fall due.
If CWT were to see a change in control of ownership, the REITs also do not anticipate any change in the operating side of business for now as warehouses remain fully leased with good demand for space.
