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Croesus Retail Trust: 4Q FY2014 DPU improved as expected.

Thursday, August 28, 2014

In May this year, I made an estimate on Croesus Retail Trust's possible forward yield. That was when DPU seemingly took a dip after the purchase of 2 malls.

At the time, I said that:

In the quarter April to June 2014, the 2 newly acquired malls will contribute a full quarter of income. This will bump up quarterly DPU. Annualising that DPU will more accurately reflect the annual DPU and hence the distribution yield of the Trust.

Of course, I was really staring hard into my schizophrenic bowling ball and hoping that it would cooperate when I also said:

With distribution income for January to March 2014 at JPY 619.78 million which gives us a DPU of 1.76c, an additional NPI of JPY 144.4 million (JPY 72.2 million x 2) will have some positive impact on DPU for the quarter April to June 2014. Even assuming that costs go up by some JPY 50 million (additional management fees and financial costs), we would still be looking at some additional JPY 94 million which can be distributed to unit holders. This is an increase of about 15%. So, we are looking at a DPU of possibly 2.024c.

Well, 4Q FY2014 DPU came in at 2.00c. My bowling ball was a bit off by about 1.2%. OK, no spa treatment (i.e. polishing) for it for the next two months!

To be fair, the two newly acquired properties began contributing their first full quarter of income when higher consumption taxes were introduced in Japan on 1 April 2014. Overall, consumers in Japan cut back on spending somewhat country wide. So, a DPU of 2.00c is, I believe, commendable.

So, what is the distribution yield now?

Of course, since my blog post in May, Croesus Retail Trust's unit price has gone up a fair bit, from 93c a unit to $1.02. This is an appreciation of 9.68% in 3 months.

So, yield has compressed. Annualising a quarterly DPU of 2.00c gives us 8c or a forward yield of 7.84% at a unit price of $1.02. For those who got in at 87c, yield on cost is almost 9.2%.

Would yield improve in future?

Distributable income looks set to improve in the next 12 months as tenants accounting for 20% of Croesus Retail Trust's total revenue will see their leases coming up for renewal. Positive rental reversions could also surprise on the high side as some leases have not seen any increase in rents for many years. This will result in a higher distribution yield for unit holders, all else remaining equal.

What to look out for?

The management of Croesus Retail Trust are still on the prowl for quality properties to acquire. However, with gearing rather high, some form of equity fund raising is probably required to either fully or partially fund future purchases. Whether they are able to do this in a way that would add value for existing unit holders would tell us something about the management.

See: Media Release.

Related posts:
1. Croesus Retail Trust: What is the forward yield?
2. Croesus Retail Trust: Motivations and risks.


Capricon said...

CRT announced Q3 DPU of 1.76 and Q4 DPU of 2.0, total should be 3.76 but only 3.74 is announced today. What did i miss out ? Any fine prints ?

I am writing to the investor relations. :D


AK71 said...

Hi Capricon,

Could be an exchange rate issue but I shall wait for you to share what CRT's IR department has to say. Thanks. ;)

Lee Kim Poh said...

Hi AK,
That was exactly what I brought up the last time. The last distribution was 5.24 cents (suppose to be 2.02 + 3.26 = 5.28)The exact words of their reply were "The reason for the slight discrepancy you point out below is due to the difference in the actual exchange rates used as well as the difference in the number of units issued during the two periods"
The difference may look slight but if you have large quantity it will be quite a sum. My case, two distributions combined I would have lost about $350.

Lee Kim Poh

Capricon said...

you are correct that the differences is due to exchange rate and no. of units.
I thought once DPU is declared for the Qtr, it would not change but it seems otherwise.


AK71 said...

Hi Kim Poh,

Wow! You are a big investor in CRT! Thanks for sharing your experience with their IR department. :)

AK71 said...

Hi Capricon,

I guess that's that. Thanks so much for sharing their response with us here. :)

Capricon said...

I thought once the DPU is declared in the Q3 accounting statement/ report, it would not change, so it can be otherwise?

The dividend going forward will be declared biannually (during Q2 and Q4 results). If you need further clarification on anything else, please let me know.

Oops ... Did I screwed it up ? IR sound unplease and didn't bother to address in last reply. ๐Ÿ˜๐Ÿ˜๐Ÿ˜๐Ÿ˜

I thought once financial statements announced, it is fix, NO ?

Let's all fallin @ AGM !๐Ÿ˜„๐Ÿ˜„๐Ÿ˜„

AK71 said...

Hi Capricon,

It depends on how they manage it, I guess. If they announced a DPU based on income and exchange rates at a point in time but there is no actual distribution, then, things could change 3 months later if they did not lock in. So, DPU in S$ could be higher or lower than announced.

I guess this is why they will do the DPU announcement half yearly in future. They probably received quite a few emails from unit holders on this matter. LOL.

Still a young Trust. Will see how well they perform in the next couple of years.

pearlrhythm said...

Dear AK,
CIMB likes CRT too :) Excerpt from their report below:
CRT posted a set of above-expectation results with twin boosts from higher revenue, especially at Mallage Shobu, and lower property costs. This was despite the introduction of a higher consumption tax on 1 Apr. FY14 distribution income was c.10% ahead of our estimate. Looking ahead, we expect the tenant remixing exercise at Mallage Shobu to yield positive returns when the current low occupancy cost is marked to market. The group is also exploring third party acquisitions in addition to its two present ROFRs. With a gearing of 51.7%, it has room to raise JPY16bn worth of debt to fund its potential purchases. We continue to like CRT for its pure play into the reflating retail real estate sector. We maintain Add and our DDM-based target price of S$1.16.

AK71 said...

Hi pearlrhythm,

Thanks for sharing CIMB's research here. Always good to hear different perspectives. :)

CharlieK said...

Hi AK,

How do you feel about SGYI copying your analysis and investment recommendations even though he's just following your approach and timing? I subscribe to both of you and he should at least credit you if he's going to post the same content and ideas about Croesus/Saizen.

AK71 said...

Hi Charlie,

SGYI has contacted me before to say that I inspired him to invest in the way I do and he is convinced that my methods are suitable for him.

We also met up recently at an event and we talked quite a bit about investments and about how we could do a better job of spreading the message of financial freedom. I have also shared freely with him like I do in my blog many of my little ideas. I find him very enthusiastic and quick on the uptake.

As for "copying" my analyses and recommendations, I always say I talk to myself in my blog, so, like many others, I am sure he overheard and took action. LOL. In fact, he told me before that after reading my blog on Japanese real estate, he became interested in them too. So, I know talking to myself inspired him to explore these investments. :)

I know where you are coming from with your concerns. Thanks so much for looking out for me. I will talk to SGYI. :)

AK71 said...

Mainboard-listed Croesus Retail Trust said it has increased its currency hedging efforts as the Japanese yen weakens against the Singapore dollar, hitting earnings from retail properties in Japan.

The business trust also hopes that rising property prices in Japan could help mitigate the foreign exchange risk, Channel NewsAsia reports. The seven retail properties in Japan are Aeon Town Moriya, Aeon Town Suzuka, Croesus Shinsaibashi, Luz Omori, Mallage Shobu, NIS Wave I and One's Mall. Its hedging efforts are aimed at covering its distributable income.

"The asset and liability has a natural hedge because they are all in yen, the only unhedged portion is the net asset value, so if the yen weakens, the net asset value on the Singapore dollar basis will also weaken,” said Mr Jeremy Yong, co-founder and managing director of the Croesus Group.

“However there are mitigating factors, and the biggest mitigating factor is that our property values are going up. So whatever negative currency impact that we see should be offset by the positive capital gains or the revaluations of the assets."


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