S-REITs' slashed exposure to CWT properties even before CWT International's default

AIMS APAC REIT, of which CWT is a major tenant, has chosen a partial master-leased structure for selected assets instead of a full one.

HNA’s CWT International, the parent of CWT Limited, failed to pay interest, triggering a cross-default to lenders under a HK$1.4b facility agreement, a Hong Kong Stock Exchange statement revealed.

DBS Equity Research noted if the amount is not repaid by 17 April, lenders will have the right to enforce security and obtain possession of charged assets which include shareholdings in CWT Pte Ltd, investment properties in the UK, US, and golf courses in China.

Moreover, the default has triggered a cross-default under a term loan facility; outstanding amounts due under the facility is HK$766m which comes on the back of a change in control of CWT Pte Ltd, if lenders proceed to take enforcement measures.

CWT Pte Ltd is a major tenant of various logistics-focused industrial REITs, such as AIMS APAC REIT (AA REIT), Cache Logistics Trust (Cache), and Mapletree Logistics Trust (MLT).

In a separate bourse statement, MLT said that CWT has not defaulted on its rental payments under the various lease agreements with MLT and there are no arrears due from CWT. “MLT currently holds security deposits of six months of rental in relation to the leases with CWT.”

DBS analyst Derek Tan mirrored this and said, “Selected REITs that we have spoken to do not anticipate any major disruptions for now – REITs typically collect six months’ worth of security deposits, which shields them from near-term income disruptions while remarketing the space.”

However, Tan observed 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.

“Cache converted its master-leases across various warehouses to multi-tenancies, transacting directly with the underlying tenants instead. Meanwhile, AA REIT has also 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.”

However, in the event of a change in control of ownership for CWT Pte Ltd, Tan said most REITs do not anticipate any change in the operating side of the business for now as the warehouses remain fully leased with good demand for space.