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Croesus Retail Trust: AK makes a suggestion.

Thursday, April 17, 2014

This blog post is in reply to a reader's question on Croesus Retail Trust: here.


Hi Capricon,

Not that I know of, no. Of course, I could have missed it. -.-"

I know the management is caught in a situation where they really want to seize acquisition opportunities because commercial property prices are rising fast in big cities in Japan.

However, the biggest advantage of being a business trust has been blocked by the management's own promise not to gear beyond 60%. After their recent two acquisitions, they don't have much left in terms of debt headroom.

I do not see how a higher unit price will help them to borrow more money since gearing is calculated based on the value of the properties in the Trust and not its market cap.

If they want to do another acquisition without having gearing cross beyond 60%, the way is to do equity fund raising either through rights or placement.

Actually, Jeremy Yong could consider something else. The Trust could issue perpetual bonds because they are treated as part of the equity structure. So, gearing would actually drop and the Trust would have the money to do more acquisitions. As long as the NPI yield is higher than the coupons to be paid on the bonds, unit holders will benefit. However, if the Trust does this, I hope the bonds are in JPY and not in S$.

Do you have Jeremy Yong's contact details? If you do, send him an email and tell him what AK suggested. Of course, I do not know if it is practicable or not. Just a crazy idea, perhaps. ;p

Related posts:
1. Croesus Retail Trust: Luz Omori and Liz Wave I.
2. Perpetual bonds: Good or bad?

6 comments:

Capricon said...

Hey AK,
Yes, he did mention they are exploring various options to raise funds for acquisitions. BTW, he also mentioned about revaluation of the properties in June and that would reduce the gearing, but he is not suppose to share or speculate. However he does point out the lower cap rates of nearby properties and if assuming similar cap rates, valuation gain can be at higher end of single digit or higher.

Btw, disclaimer : above is based on best I remember and my interpretation, I could be wrong.

Cheers

AK71 said...

Hi Capricon,

Thanks for sharing. It makes sense to revalue the properties, of course. Commercial properties in Japan are seeing lots of interest from investors and prices have gone up by almost 10% in the last one year, iirc.

So, a revaluation, could potentially help to send gearing below 50% which could give them enough debt headroom for another acquisition or two.

However, acquisitions should be selective and not indiscriminate. They must benefit unit holders by being DPU accretive and, preferably, also yield accretive. We will have to wait and see. :)

redponza said...

So does Croesus have any lease mgt fees waiver? This will reduce upcoming distributions if it is only waived in the 1st two years

AK71 said...

Hi redponza,

I don't see this anywhere but I hope I have not missed it. -.-"

AK71 said...

Eddy Goh: Fr SGX, "Tong Jinquan is the sole shareholder of Shanghai Summit Pte Ltd which is the sole shareholder of Wealthy Fountain Holdings Inc and accordingly is deemed to be interested in the 21,506,000 units which Wealthy Fountain Holdings Inc holds" " He bot 300 lots on 2 May @ 90 cts average price & is now a substantial shareholder of CRT.

AK71 said...

Croesus Retail Trust, a Singapore-listed property trust focusing on Japanese malls, has announced a third-quarter distribution per unit was 8 per cent higher than forecast at 1.76 cents. Income available for distribution also exceeded expectations by 7.4 per cent, coming in at 619.8 million yen (S$7.6 million), said the trust's manager Croesus Retail Asset Management.

http://www.straitstimes.com/news/business/companies/story/croesus-retail-trusts-q3-distributions-8-higher-forecast-20140515

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