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CWT parent defaults on loan

S-Reits with strong exposure are sold off, but DBS analysts do not anticipate major near-term earnings disruptions

Real estate investment trusts (Reits) that count logistics player CWT Pte Ltd as a major tenant faced a sell-off on Tuesday after CWT's parent defaulted on a loan agreement.


REAL estate investment trusts (Reits) that count logistics player CWT Pte Ltd as a major tenant faced a sell-off on Tuesday after CWT's parent defaulted on a loan agreement.

But DBS Group Research analysts have said that they do not anticipate major near-term earnings disruptions to Cache Logistics Trust (Cache), Mapletree Logistics Trust (MLT) and AIMS APAC Reit (AA Reit).

CWT Pte Ltd's parent - Hong Kong-listed CWT International - missed interest and fee payments to lenders of HK$63 million (S$10.9 million), triggering a cross default under a HK$1.4 billion loan facility. Outstanding amounts under the facility stands at HK$766 million.

According to Hong Kong Stock Exchange (HKSE) filings, lenders have made demands to CWT International - a separate legal entity from CWT Pte Ltd - for the overdue sum.

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If the Hong Kong-listed firm is not able to pay amounts owed by April 17, 9am Singapore time, lenders have the right to enforce security and obtain possession of charged assets. This includes the 100 per cent stake in CWT as well as investment properties in the UK, US, and golf courses in China.

During Tuesday's session, the three Reits were sold off by investors on higher-than-usual volumes. Cache saw its units shed four Singapore cents or 5.3 per cent to close at 71.5 cents.

MLT, where CWT contributes to about 9.1 per cent of gross rental income (GRI) as at March 2018, closed six Singapore cents or 4 per cent down at S$1.42.

AA Reit units dipped two Singapore cents or 1.4 per cent to close at S$1.39. CWT rentals make up 8.4 per cent of GRI to AA Reit in Q3 FY2019.

In its flash note, DBS analysts noted that it was CWT International that defaulted and not CWT, and added that Reits typically "collect six months' worth of security deposits, which shields them from near-term income disruptions while remarketing the space".

Cache has three months of security deposits in relation to leases with CWT. AA Reit holds security deposits ranging from three to six months of rental. The Reits have also lowered their exposure to CWT.

In a separate update last night, the manager for Cache said that as at April 16, CWT contributes about 16.5 per cent to its GRI, down from 20.6 per cent as at Dec 31, 2018.

The weighted average lease to expiry of the CWT leases by GRI is less than one year. It added that CWT has not defaulted in its rental payments under the various lease agreements and there are no arrears due.

AA Reit has also adopted a partial master lease structure to lower its exposure to CWT, analysts say.

In a DBS Securities note to clients, the brokerage said that CWT International's default could result in a weakness for CWT's two Singapore dollar denominated bonds.

CWT has a S$100 million note due on April 18, but Ezien Hoo, a credit analyst at OCBC Bank, does not expect the company to default on payments to bondholders. Speaking to The Business Times, Ms Hoo said: "We think that noteholders will be able to redeem their notes."

CWT delisted from the Singapore Exchange in December 2017 after being taken private by Chinese conglomerate HNA Holdings Group.

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