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Croesus Retail Trust 1H FY2017 Hong Bao.

Tuesday, February 14, 2017

This was from a recent conversation:


Reader:
"Croesus Retail Trust reported good results but an investor I know sold all his shares already."

AK;
"We have our reasons for buying or selling. If our facts are right and if our reasoning is sound, we should do OK. We could consider facts and reasons offered by other investors in reviewing our investment thesis but don't be influenced by their buying or selling."

Mallage Shobu, a CRT mall in Saitama.

That Croesus Retail Trust (CRT) has done well is something I should really celebrate twice because it was with the funds that I got from selling my rather big investment in Sabana REIT years ago that I invested in CRT. 

I should celebrate that I was lucky enough to get out of a terribly managed REIT with fairly decent gains and I should celebrate that I was lucky enough to build a good size position in CRT at fairly good prices.
CRT has announced a distribution per unit (DPU) of 3.6c for 1H FY2017. Based on a unit price of 87c, CRT currently offers an annualised distribution yield of 8.28%. 

Gross revenue went up. Net property income (NPI) went up. Distributable income went up. DPU went up. This is what we want to see. All is well.

Now, I want to share a couple of things. If we see distributable income up and DPU is down, how like that? If we see gross revenue down and NPI up, how like that? 

To me, these are a couple of things which might hold me back from making an investment or adding to an investment. I would have to investigate into the reasons and see if something was wrong and if the wrong was enduring.

If you don't understand what I am saying, never mind. I am just talking rubbish, as usual.

Mallage Saga, a CRT mall in Saga.

Anyway, back to CRT. I will make only a few points because the presentation slides are pretty self explanatory:

1. One of the benefits of having an internal manager is cost savings and the savings we saw in 1H FY2017 should be more pronounced in 2H FY2017. This is because the cost savings only started more than halfway into 1Q FY2017. CRT's DPU should have some support from this.

2. I said before that I like AIMS AMP Capital Industrial REIT because they engage in asset enhancement initiatives (AEIs) and redevelopment of existing assets. Doing something with our existing assets to enhance their income generating ability is always preferred and usually less costly compared to simply buying another asset. CRT is pursuing organic growth too. How to say I don't like?

3. The negative interest rates in Japan are not going away anytime soon. This is good news for domestically leveraged entities in Japan like CRT. USA's interest rate hikes will have no direct impact on CRT which is not the case for many S-REITs as Singapore imports her interest rates from the USA.

4. Although CRT's gearing ratio has gone up from 45.3% to 46.1%, the interest cover ratio has also gone up from 3.7x to 4.2x. Higher level of debt is not alarming if debt service ability has strengthened.

I like what I see and I will stay invested.

See press release: HERE.
See presentation slides: HERE.

10 comments:

Arthur Wang said...

Simple and straight to the point to help us non-financial people understand CRT. Good post again.

AK71 said...

Hi Arthur,

I am glad you like it. :)

I am not from a finance background either.

So, you should take my blog with a pinch of salt. ;p

1871e1fc-10c3-11e5-a794-7f9fad27c9b8 said...

Hi Ak, i also bought/sold Saizen and buy into AGT and CRT.

back to CRT,
--
CRT’s distribution policy is to distribute 100% of its distributable income
from 1 July 2016 to 30 June 2017, and at least 90% of its distributable income
thereafter.
--

so correct to assume worst case, all else remains equal, this 3.6c can
become 3.24? the yield becomes 3.24 / 87 x 2 = 7.45% but they retain more cash.
hopefully do AEI or acquisition ;)

This distribute 90% instead of 100%... wonder if this is something to take
note. but even at reduced DPU, at my avg price, the yield still very gd lor.
just that i wont add more.


FC

AK71 said...

Hi FC,

I don't know what is the worst case scenario but, everything else remaining equal, a 90% payout would mean DPU taking a 10% haircut.

Actually, as a property investor, I am quite happy if CRT retains 10% of distributable income and, if they are worth their salt, they will be able to do something with the money to improve DPU. :)

AK71 said...

Stable occupancy rate and WALE. Portfolio occupancy remains high at 98.0%, slightly higher than 97.8% as at end-1Q17 as the occupancy at Feeeal Asahikawa bounced back to 94.8% from 88.9%. Weighted Average Lease Expiry stays long at 6.6 years.

AEIs could bring medium-term upside. CRT continues to undertake AEIs at the properties it recently acquired, particularly at Torius and Feeeal Asahikawa. These AEIs are in conjunction with tenant remixing which could result in higher rents.

Refinancing expected to bring interest savings. Gearing increased to 46.1% from 44.6% at end-1Q17 whereas average cost of debt edged up to 2.01% from 1.93%. The increase is temporary due to refinancing of an existing debt as the new debt facilities partially overlapped with the old ones in the quarter which resulted in negative carry. Once the old debt is fully retired from January 2017, gearing is expected to fall below 45% and average cost of debt below 2%. CRT is also expected to enjoy lower recurring interest expense of c.JPY152m p.a. In addition, 100% of interest rate remains hedged or fixed.

Source: DBS Research, 15 Feb 16.

1871e1fc-10c3-11e5-a794-7f9fad27c9b8 said...

AK, thx!
15 Feb 17 ;)

AK71 said...

Oops. -.-"

redponza said...

I like organic growth much better than any acquisitive growth.
Hence I stayed away from this gem after it kept on acquiring new properties last year.

Now with an internal management, the tempt to make acquisitions may be lower.
Hence I re-enetered into my position earlier this year :)

Think AK has penciled all of the upsides already.
Another one should be the exchange rate hedge in place which will temporarily boost the DPU for the next 2 years :)

AK71 said...

Hi redponza,

Acquiring good properties at right prices and funded correctly can help propel growth. If we can improve returns by doing AEIs and redevelopment of existing properties, even better.

Since first becoming an investor in 2013, I have increased my investment from time to time. I am lucky that CRT as an investment for income has turned out nicely. :)

redponza said...

I agree, but I still prefer AEI nevertheless....

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