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Croesus Retail Trust: Overnight BUY order filled.

Monday, January 27, 2014

I entered several BUY orders last night and one of these was a BUY order for Croesus Retail Trust at 87c which was the price at which I initiated a long position last year.

I decided that the expected market weakness today would be a good opportunity to increase exposure to the Trust because of an encouraging set of numbers. Using the information provided at its IPO, I estimated the distribution yield to be 8.5% when I got in at 87c a unit last year.

However, with a higher than forecast DPU now expected, distribution yield at 87c a unit has bumped up. According to the management's annualised figure, distribution yield should approximate 9.46% at 87c a unit. This is very attractive for the kind of assets the Trust holds.

Even if we are a bit conservative which was my attitude towards estimating the DPU back in November, for anyone buying in at 87c a unit, a 9% distribution yield is quite realistic.


Given the fact that most of its income is hedged against foreign exchange fluctuations for two years and that the bulk of its loans are locked in for 5 years at a very low interest rate, DPU level in S$ terms is more or less protected. This is probably an important consideration for anyone investing for income.

What might change the DPU level is the S$100 million 4.6% MTN issued just a few days ago. These notes are due in 2017.

4.6% is pretty high compared to the interest rates of the Trust's JPY loans. However, just like in the case of AIMS AMP Capital Industrial REIT which also issued notes last year attracting higher costs compared to conventional bank loans, the access to a different funding source increases the level of funding flexibility and, some might say, security. The higher cost of funds is justifiable.

If I were to hazard a guess, I would say that the management has identified potential acquisitions and with NPI yield for malls in Japan hovering at about 6% in general, any acquisition is likely to be DPU accretive. If this were the case, then, there is no fear of distribution income being negatively impacted.

We must, however, still keep an eye on the numbers.


The hard numbers tell us that finance costs will jump by some 30% because of this S$100 million MTN and unless put to good use it will also reduce DPU by about 5%. So, the funds raised should not be left idle for too long.

This is how I would look at the issue of the S$100 million MTN. Simply saying it is not cheap or it is expensive is not very helpful in our decision making process or is it?

If Mr. Market should continue to feel depressed and decide to sell even more cheaply, I would probably be buying more. There would be an even greater margin of safety then.

See slides presentation of 13 Jan 14: here.

Read about the $100 million 4.6% MTN: here.

Related posts:
1. Croesus Retail Trust: Initiated long position at 87c.
2. Croesus Retail Trust: Motivations and risks.

44 comments:

AK71 said...

US investors ran for cover on Friday as an 11 per cent slump in the Argentine peso against the dollar refuelled concerns about emerging market currencies.

Those fears were exacerbated by data last week indicating manufacturing activity in China -- a key driver of global growth -- had contracted in January.

"There is a fear that there is going to be a contagion in emerging-market currencies," Maybank Kim Eng head of sales trading Kevin Foy said.

The growing pessimism sent investors to seek out safer, lower-return assets, particularly the Japanese yen, which is considered a safe haven in times of economic uncertainty.


Source:
http://www.channelnewsasia.com/news/business/international/asian-shares-tumble-as/969262.html

boonchin.ng said...

Hi AK,

Was looking at Starhill Global REIT, their Japan portfolio contributed some 3% to its 2013 gross revenue. Stated in the latest Q4 result, their Japan portfolio saw some 26% drop in revenue and 50% drop in NPI mainly due to depreciation of JPY.

Am just wondering why their Japan portfolio performed poorly. Perhaps their JPY income is not hedged?

AK71 said...

Reminder to myself:

Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.

- Warren Buffett

AK71 said...

Hi boonchin,

That can be the only logical explanation. :)

Actually, if I were the manager of Starhill Global REIT, I would look into divesting the Japanese assets unless there is plan to bulk up their Japanese presence. Very hard to enjoy economies of scale otherwise.

Quan said...

AK would you prefer capitaland or keppel land

AK71 said...

Hi Quan,

Property developers are having a hard time and it does not look like the situation will change in the near future.

However, I do like Capitamalls Asia for its exposure to the Chinese consumers. Expectation is for consumption in China to grow. It is only natural that it should happen. Just takes time.

So, if I really had to choose, I would go with CapitaLand, purely from a qualitative perspective.

SGYI said...

When everyone is running, Ak BUYS more. :p

So many people selling cheaply so why not buy right? Haha. The market is giving a discount now.

I do hope CRT makes good use of the loans it has to acquire better assets. Let's see if we can trust the management to deliver good results.


AK71 said...

Hi SGYI,

Actually, there isn't much selling pressure at Croesus Retail Trust. 87c isn't terribly cheap but it is a fairly good deal, I feel. :)

With no track record to speak of, a higher distribution yield is also a requirement to get investors interested. Quite logical.

Of course, some were excited when the price got chased to $1.18 soon after IPO and they got caught in the euphoria but they were probably more speculators than investors.

SGYI said...

Hi AK,

No selling pressure because so many people following you to buy. :p

I did not buy in though. Maybe if it goes lower than will accumulate more. Now its at my price so status quo.

Chasing to $1.18 is crazy. Even above $1 is expensive. Similiar to people who were chasing to buy condos above $1 million. Lol

AK71 said...

Hi SGYI,

I just want a bigger long position in the Trust and since I identified 87c to be the immediate support, I went ahead and put in a BUY order. ;)

Read my 2nd comment here? A quotation from Warren Buffett. A reminder to myself. Where was the MOS at $1.18? -.-"

Nightmare_Angel said...

Hi AK71,

I thought you will buy more of Yongnam at $0.23! :)


Cheers
QL

AK71 said...

Hi QL,

I am corrupted by TA. I am so sorry... -.-"

SGYI said...

Hi AK,

I think your support for yongnam might be at 0.2 to 0.21? :p

AK71 said...

Hi SGYI,

22c is a many times tested support. If that goes, then, possibly 20c. -.-"

SOLIDCORE said...

Hi SGYI,

Looking at TA, it's hard to tell how much lower Yongnam can drop but today the selling pressure has indeed increased and CMF is still looking very ugly.

Having said that, 23 cents is an ok price and definitely nicer than 24 or even 25cents just 2 weeks back.

AK71 said...

Hi Solidcore,

I would be very impressed if anyone can say what is the lowest Yongnam's share price could sink to. ;p

I would look at volume too. Was the selling accompanied by higher than usual volume? If not, then, selling pressure might not be that strong.

Anyway, 22c is where I would be buying some if tested. Otherwise, I am quite happy keeping the status quo. ;)

cindy tan said...

Hi AK 71,

I note you have CMA too. Would you add on based on the current price of 1.8? Very close to 1 year low of $1.74.

Thanks!

AK71 said...

Hi Cindy,

People investing in CMA must be prepared to hold for a few years. It takes time to build malls and wait for them to mature even after opening.

In the meantime, there is some dividend, not much, for us while waiting. So, for someone investing for income, this should not form a large part of his portfolio. At least for me.

So, I won't add to my long position unless Mr. Market makes me a very good offer.

Technically, even the 100w MA has been compromised. That is at $1.85. Next support should be around $1.70. If that goes, the golden ratios are at $1.49, $1.43 and $1.36.

Momentum oscillators are weak although the Stochastics shows oversold which suggest a possible bounce in share price.

Just my bowling ball talking to me. ;p

imdna said...

Hi AK71

Hypothetical question:

If you did not own any Reits today, what would be the top 2 reits you would buy in?

AK71 said...

Hi imdna,

Sneaky! ;p

Difficult to answer. I like different REITs for different reasons but they will all face the same headwind from a rising interest rate environment.

I will give you a list of REITs I like more (even now):

1. First REIT
2. LippoMalls (LMIR)
3. AIMS AMP Capital Ind REIT
4. Saizen REIT

Choose 2 from the list? Just thinking about it gives me a headache. So, I will pass. ;)

David & Thi said...

Hi AK71,

I spend some time looking at the SGDJPY rate as well... It might be a good time for investing into CRT after the rate went from 57.11 in 2011 to current 80.57 now.

In time of crisis, people will rush to safety and JPY is always one of the place where money are parked. Seem like a lot of fund are closing their carry trade which is good for YEN.

AK71 said...

Hi Yee (I hope I remember correctly),

For Abenomics to work, the JPY has to stay low but not too low as to cause hardship for the Japanese people. So, the bounce in the JPY is probably going to be temporary.

The Yen in Dec 2011 was S$16.50 to JPY 1,000, I remember because I was in Tokyo and everything looked expensive, and last month when I was in Osaka, it was only $12.20 to JPY 1,000. A big difference. Things are really changing in Japan now. :)

Consumers are no longer holding back their purchases and property prices are on the rise.

Whether things will continue to look up will depend on how well Abe's government follows through on what they have started. However, they look promising.

At the current price level, even if Croesus Retail Trust does not grow its DPU, I am quite contented. Even if DPU should reduce 5%, it is not going to be a big deal. I have my MOS and that makes me happy. :)

boonchin.ng said...

Surprised that FCT not in your "like list" :(
I assume today price @ 1.715 should be attractive with some discount to its NAV. Presume this provides some MOS?

I'm feeling that Saizen is definitely in your top 2. Good guess :P Lol

Maximillian said...

Hi AK,

Have been following your blog for a while and notice that you are very active and knowledgable. Nice effort you have here! Noted that you have alot of postings on REITs. So perhaps your investment objective is for income.

Is there a post where by you explain about investing for income or growth? Or anything about investing objective?

Thanks!

sillyinvestor said...

Hi AK,

I am just wondering if we are missing out on the non-REIT property counters.

Some are giving consistent yield comparable to reits,6-7%.

In the case of Sim Lian, it's balance sheet is also strong, very very low gearing.

Of course, everybody is talking about the property market crashing. Weird, how extreme market can swing, many property counters have fallen to their 52 week low, suffering 18-25% drop.

While property prices has risen fast an furious the past few years, the prices of many property counters are rising more moderately in tandem with their rise of NAV, in fact many are still trading below NAV.

Time to do some serious research :)

AK71 said...

Hi boonchin,

I don't know if I would be interested in FCT at current price. Personally, my family shop at CMT's malls most of the time. Care to do a guest blog on FCT? ;)

You trying to get me to say something more about Saizen REIT in my portfolio? Sneaky! ;p

AK71 said...

Hi Maximillian,

In my blog's right sidebar, you will find some links to blog posts which I think might be more useful to readers. One of these is:

Motivations and methods in investing.

Hope this is what you are looking for. :)

AK71 said...

Hi Mike,

I have been told this as well but with the belief that property developers, especially those heavily exposed to the domestic market, will face strong headwinds in the next couple of years, I have mostly avoided them.

For a brief period, I was exposed to Sim Lian as well as its numbers suggested that its stock is cheap but I have since divested. When in doubt, I should stay out.

Property companies will mostly survive as most have stronger balance sheets now thanks to the boom in the property market. However, what about future earnings? Wing Tai just announced pretty disappointing results.

I always like to look at the big picture first. :)

sillyinvestor said...

Hi AK,

What u say is properly true, I however find Wingtai interesting, beside sim Lian.

Not that they Are screaming buy now, but my gut feel is MR market is about to get depressing about them soon. Hahaha

Of course, the devil is in the details. How many bought land at recent skyhigh prices, how many pending launches are sold out, their exposure to various markets.

I hope but the time I have a reasonable answer, the market is offering a super sale across the board so that I can pick the strongest of them all.

AK71 said...

Hi Mike,

I will wait for your analyses which I believe will be Top Grade as usual. :)

For now, I will wait. The property cycle is on a slippery downslope and there is probably a better time to get back in.

SGYI said...

I would think the property cycle has peaked. Earnings will surely drop as the number of property transactions decreases.

From the stock market's perspective, the property market may crash but those property stocks shouldn't drop by too much as much has already been priced in. However, it may stay low and lag behind for quite sometime. It would be a better choice to invest elsewhere where growth is still expected.

AK71 said...

Hi SGYI,

I think we share the same approach. :)

I always look at the big picture first. Top down approach. Then, within what I feel are more promising industries, I try to look for undervalued stocks.

David & Thi said...

I am also vested at 87.5 cents... :)

AK71 said...

Were you the one who bought all 165 lots at 87.5c at 2.54pm just now?

SGYI said...

Hi AK,

Oh, great to hear that. This means I'm on the right track :p

AK71 said...

Hi SGYI,

Oh, right or wrong, I am not sure but it is one possible track. :)

David & Thi said...

No Lah... AK, me small fish... buy a little only.

AK71 said...

Hi Yee,

Some big fish is buying up Croesus at 87.5c today. Hmmm...

David said...

Hi AK,
just to check with you. Probably you've heard some issues with HSBC U.K not having enough capital (low capitalization) and therefore they're making it diffult for ppl to withdraw cash. Seems a few of the Europe banks have the same set of problems. I wonder whether it would result in another finance issue.
Another article that i think is related to also why gold suddenly is low.
http://slimbeleggen.net/duitsland-onderzoekt-manipulatie-goudprijs/

Maximillian said...

Thanks AK.

I think i might as well get myself started with reading all of your posts.

Happy luna new year and i wish you n your family good health and may your warchest grows bigger and fatter.

AK71 said...

Hi David,

Yes, I read the story regarding HSBC. Unfortunately, this is beyond my ken. I think we need to be the powers that be to know what is going on.

So, I have a choice to stick to my plan or get petrified with fear. Hmmm. What to do?

If we have a plan that will see that we do OK whether the market is up or down, we should stick to our plan. :)

AK71 said...

Hi Maximillian,

Thank you for the well wishes.

I hope to put some of the money in my war chest to good use very soon. ;)

E H said...

AK

Buying REITs is as good as buying its currencies. First, Lippo and Saizen give me the jitters.

AK71 said...

Hi E H,

I always believe that a peace of mind is priceless. If it is going to give you sleepless nights, best to stay away from it. :)

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