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Croesus Retail Trust: 22 for 100 rights issue.

Tuesday, September 29, 2015

Some time ago, I mentioned that due to the relatively high gearing level, I expected further acquisitions made by Croesus Retail Trust to be funded through new equity or a blend of new equity and debt.

In their acquisition of another mall in Japan, Torius in Fukuoka, funds will be raised partially through a rights issue. 


Some details:

1. 114,222,677 Rights Units. 

2. Issue price of S$0.610 per Rights Unit.

3. 22 Rights Units for every 100 existing Units held.

I very much prefer a Rights issue to a share placement because the former allows all unit holders to participate. I also like Rights issues if the money is used to purchase good quality income producing assets which would lead to DPU accretion.

Based on the purchase price, the NPI yield of Torius is 7.8% while Croesus Retail Trust's portfolio's NPI yield is 5.3%. So, the purchase is NPI yield accretive. However, due to the enlarged float, post Rights issue, we would see only a slight increase in DPU.

By subscribing to the Rights, I am putting my trust in the management to extract more value from the property as they have hinted at AEIs and future positive rental reversions.


I will fully subscribe to my Rights entitlement at 61c per Rights Unit and I will also apply for excess Rights, as usual. If I am successful in getting some excess Rights, it would improve the distribution yield of my investment in the Trust.

During the one week or so when nil-paid Rights are being traded (9 Oct to 19 Oct), we could see some weakness in the Trust's unit price. That could be an opportunity to accumulate.

Also, if the nil-paid Rights are priced attractively, I could buy more. For example, if we think that, post acquisition and Rights issue, a fairly good unit price to pay for Croesus Retail Trust is 80c a unit, then, if the nil-paid Rights should trade at anything lower than 19c a piece, it could be a good deal (80c - 61c).

I certainly hope that this rights issue would present opportunities for me to add to my investment in Croesus Retail Trust at more attractive prices.

Read announcement: here.
See Press Release: here.
"Nil-paid" Rights trading period from 9 October 2015 to 19 October 2015. The closing date and time for subscription for Rights Units by Unitholders is 23 October 2015 at 5:00 p.m. (9.30 p.m. for Electronic Applications through ATMs of Participating Banks).

Related post:
Croesus Retail Trust: ONE'S MALL.

53 comments:

darryl see said...

hi ak
how are we to subscribe to the rights? by DBS?

AK71 said...

Hi Darryl,

All eligible unitholders will receive a package from the CDP in due course. Relevant details will be in the package. Don't worry. :)

AK71 said...

For anyone who is new to Rights issues, you might be interested in this blog post by my friend and fellow blogger:

How to apply for rights and what are the options?

The Sun said...

Hi AK,

Whilst yield accretive, a drawback of the new property is that it is leasehold and the lease expires in 2060. The bulk of their existing portfolio are freehold though.

Siew Mun said...

According the materials published in SGX, the enlarged portfolio pro forma DPU is 7.66 Singapore cents in FY15. I think the pro forma DPU should be 6.894 Singapore cents to take into account that 90% of DPU payout will be distributed after June 2015 stated in the prospectus. FYI the first 2 years payout being100% What do you think?

AK71 said...

Hi Sun,

That is probably why the NPI yield is much higher. This is the Trust's second leasehold property. Another one is in Tokyo and that one sees its land lease expiring in 2059.

If the NPI yield of this mall in Fukuoka does not change, the Trust will recover its investment in 12 to 13 years. If the NPI yield improves meaningfully, then, it could take just 10 years. So, there would still be a good 30 to 35 productive years left to the property. :)

AK71 said...

Hi Siew Mun,

It is probably a good idea to be more conservative. The management could indeed reduce payout to 90%. Then, to have an 8.5% distribution yield, all else remaining equal, we are looking at a unit price of about 81c. This gives us an idea of how we might want to approach the rights issue. :)

Capricon said...

Ak
8.5% distribution yield is something that you conservatively expected after taking into consideration of exchg rate and interest hike ? Or how do you baseline it?

Cheers

Capricon said...

Ak
Despite higher yield in past 2yrs, your 8.5% distribution yield is your personal conservative expectation of the trust after taking into consideration of exchg rate risk and interest hike? Or how do you baseline the conservative dpu?

Cheers

wee loong said...

Hi Ak,

What is the next step we need to do if we were to purchase nil-paid rights from the market?

Many thanks~

AK71 said...

Hi Capricon,

Croesus Retail Trust's distribution yield is about 9.5% now. If we were to expect a 90% payout instead of a 100% payout, then, we might see yield reducing to 8.5%, all else remaining equal.

If the Fed were to hike interest rates, it would affect Singapore. Our interest rates are basically imported from the USA. In fact, with the S$ weakening against the US$, our interest rates have been creeping up.

However, the Fed's action would have much less of an impact on Japan and also the Eurozone as they set their own interest rates. Interest rates in Japan and the EC are likely to stay low for a few more years. I believe the effective interest rate on the latest debt issue by Croesus Retail Trust is less than 1%.

As for exchange rate, the S$ has been weakening against the JPY. This gels with what I said some time ago that the JPY could not keep weakening as it would cause immense hardship for the Japanese people. Of course, Singapore doesn't want the S$ to be too strong either.

AK71 said...

Hi wee loong,

I guess you mean that you want to convert the nil-paid Rights into regular units.

Then, you would have to go to a participating bank's ATM and do the rest. You would have to pay 61c per Rights unit at the ATM before the closing date. It is as if you are an existing shareholder subscribing to his entitlement.

You want to read the blog post "How to apply for rights and what are the options?" by a fellow blogger which I shared above.

wee loong said...

Hi AK,

Yes. That is exactly what I meant.

Just read through the blog post by LP.

Thanks for ur kind reply as always :)

Capricon said...

Thanks AK, I enjoy learning your thinking and analytical process.

Cheers

AK71 said...

Hi wee loong and Capricon,

Quite happy to talk to myself. Do be careful what you take in when you eavesdrop. ;p

wee loong said...

Hi AK,

Just wondering if you have received the package from the CDP?

Didn't received anything on my side yet :(

AK71 said...

Hi wee loong,

Not so soon. I feel it will be when the nil-paid rights start trading which is another 5 days from now.

wee loong said...

Hi AK,

Alright~ think I am too gan cheong :P

Chula Sulagaesuan said...

Hi AK

Would like to ask what I need to do if I want to sell my rights to other investors? Apart from filling in the form, do I need to go to bank or ATM?

Not familiar with Right Issues.
Thank you!

AK71 said...

Hi Chula,

If you would like to sell the rights you are entitled to, you can do so from 9 to 19 October in the open market. Once you sell all your rights, you don't have to take any further action.

Chula Sulagaesuan said...

Hi AK

Thanks for the reply. Another dumb ques, how do I go about selling my rights then?

AK71 said...

Hi Chula,

It is just like how you would sell any stock in your portfolio. Give your broker a call and he will be able to do it for you. If you are doing it online, look for the new counter which will be created for the nil-paid rights.

fooztreasures said...

when will we actually get the letter package?
coz i am due overseas soon, and will like to subscribe it before i leave

AK71 said...

Hi fooz,

The exact date, I don't know but it should be soon.

You might want to give the CDP a call if you need to know this urgently.

Eddie said...

Hi AK,

For those of us who wish to subscribe to excess rights, i understand that we have to put the money upfront first (similar to IPO) and we may not get all excess rights subscribed for. In your experience, how long does it usually take for them to refund the balance back to our bank account ?

Thanks
Eddie

AK71 said...

Hi Eddie,

The refund, if any, should take a week or two to happen. Quite fast.

A Teoh said...

Hi AK,
Besides checking with CDP everyday, is there any way to know if you are allotted the excess rights?

Andrew

AK71 said...

Hi Andrew,

Another way is to see how much money is refunded to our bank account. ;p

I don't check, usually. I wait for the advice from CDP. Zen. :)

fooztreasures said...

got the package in my mail yesterday.
going to atm to apply excess rights later. =)

AK71 said...

Hi Fooz,

Good luck to both of us. ;)

Cheryl Tan said...

Thanks AK for your comments, as usual :) . I didn't know I could apply for excess rights. Hope we are all successful!

AK71 said...

Hi Cheryl,

It used to be easier to get more excess rights because people were either not interested or not in the know about them. It has become harder to get more excess rights in recent years. -.-"

MingKang Chin said...

Hi Ak,

I realized after I have applied at the ATM that I have undersubscribed for my entitled number of rights units! How can I go about applying for the remaining number?

AK71 said...

Hi MingKang,

Unfortunately, I don't think there is a remedy for this.

You might want to call the CDP and see if they can help you.

MingKang Chin said...

I have applied for the shortfall at the ATM this morning. Hope that works out.

Siew Mun said...

I apply by the old fashion way via cashier's order. The non-electronic has an inherent process that help me to check the excess shares and check my entitlements against the $ specified in the cashier's order.

cheryl2010 said...

Hi AK

I have been monitoring Croesus retail trust for a while but have not bought it yet. I am thinking of buying it after the rights issue. Is it more sensible to buy the stock after the rights period as the share price will drop after the rights issue ie it will be adjusted accordingly based on 22 units for every 1000 units held?

AK71 said...

Hi Cheryl,

I have no idea whether the unit price will drop or not. I am not very good at predicting price movement.

If you ask me about the value per unit, I could say something. ;)

If the rights issue was not accompanied by any increase in asset value and income, then, the value per unit would be lower, post rights issue. If there is an increase in asset value and income which means that the funds raised are used to purchase income producing asset, then, the value per unit might stay the same or increase. ;)

Siew Mun said...

Croesus has completed the acquisition of the Torius Property on 16 Oct 2015. Will start see an income increase or decrease reflected in their financial statement quarter ending Dec 2015 or March 2016. More likely to have a clearer gauge of income increase or decrease reflected ending March 2016. My friends will be in Kysuhu in November helping me to recce the Torius Property.

AK71 said...

Hi Siew Mun,

A friend told me that this mall is a typical suburban mall and it attracts mostly families. What is not so typical is how it reminded him of malls in Australia and the USA. It is a big sprawling complex with many standalone buildings and a big open air car park. I would love to hear what your friend's observations are when he returns from his recce mission. :)

Howard said...

AK, the announcement shows rights oversubscribed by some 215%! Guess excess rights will be tough to come by. Everyone chiong for good stuff after all.

AK71 said...

Hi Howard,

Yup. Good stuff indeed. I guess I will have to be satisfied with whatever I get. -.-"

Capricon said...

Hmm... Despite the heavy oversubscription, I'm still allocated excess 2000 for cdp and 4000 for srs though I don't have odd lots.

Hope not a value trap... :D



AK71 said...

Hi Capricon,

I always say that if we are in doubt, stay out. ;)

Is it a value trap? It would depend on what you want out of the investment and what is your definition of a value trap. ;p

AK71 said...

After talking to a few friends, it seems that Croesus Retail Trust favoured smaller unit holders when it comes to dishing out excess rights.

I received only 4,020 excess rights despite having a significantly larger investment than some of my friends who also received 4,000 excess rights.

Well, seeing how hotly oversubscribed the rights issue was, I am happy with what I could get my hands on. ;)

Siew Mun said...

I only got 2,015 which is rounded up to 100s of my current holding. Happy that I don't have odd lots and contented I get some excess shares

AK71 said...

Hi Siew Mun,

Happy! That is the most important thing. Say 'no' to negative energy! ;p

I am happy with what I got too. :)

AK71 said...

CROESUS Retail Trust on Wednesday reported a distribution per unit (DPU) of 2.08 Singapore cents for its first quarter ended Sept 30, 2015, unchanged from a year ago.

On the outlook, the trust said the competition for acquiring real estate assets in Japan has been keen in recent quarters, and is expected to remain firm in the near term.

This comes as Japan has announced further quantitative easing policies, which is expected to further accelerate Japanese real estate prices.

Illustratively, as a result of growing property prices in FY15, the aggregate value of the trust's seven properties increased 7.9 per cent as at the end of FY15, when compared to the prior valuation a year ago.

Croesus makes distributions to unitholders on a semi-annual basis with the amount calculated as at end-June and end-December each year.

It is an Asia-Pacific retail business trust, with seven retail properties located across Japan with an aggregate net lettable area of about 251,000 square metres.


Source:
http://www.businesstimes.com.sg/companies-markets/new-mall-boosts-croesuss-q1-revenue-earnings-distributions-flat

AK71 said...

Overnight BUY order for Croesus Retail Trust at 78c a unit filled.

betta man said...

Hi AK,

Do you think this is value destruction for shareholders ?

http://www.businesstimes.com.sg/companies-markets/croesus-retail-trust-launches-private-placement-to-raise-up-to-s54-million

AK71 said...

Hi betta man,

It depends on what they are going to do with the money and what it would mean on a per share basis. :)

The Observer said...

Hi AK,

May I ask if you are ever worried about earthquake risks to Croesus retail trust? Their gearing is quite high at 48% - would they be able to survive a shock? Although I know J-reits generally have higher gearing to take advantage of the low interest rate in Japan, this website shows that CRT has higher gearing compared to other J-reits in commercial property (http://en.japan-reit.com/hikaku/). There has been quite a number of earthquakes in the Pacific rim region this year, and this website from FT suggests that Japan may be overdue for the next big one... https://ig.ft.com/sites/japan-tsunami/

Kind regards,

Harry

AK71 said...

Hi Harry,

In 2013, I wrote a piece on Croesus and some of the risks:

CRT: Motivations and risks.

With regards to risk of earthquakes, people asked me the same thing when I was substantially invested in Saizen REIT. I wrote a piece in 2013. I would draw attention to the last paragraph:

Fukushima and investing in Japanese real estate.

I don't know when the next big one is going to hit. If it does hit, I hope Japan as a whole will not sink into the sea.

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