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Vote for or against selling Croesus Retail Trust?

Monday, July 3, 2017

Some might remember that the money I used to invest in Croesus Retail Trust was mostly from selling 90% of my investment in Sabana REIT a few years ago.

Since my investment in Sabana REIT was as big as my investment in AIMS AMP Capital Industrial REIT, the amount of money involved was pretty big for an average retail investor.


For those who have been following my moves over the years, they would know that I got into Sabana REIT at depressed prices, collected dividends over a 3 year period and sold as its unit price retreated from a high on the back of various red flags. 

Off the top of my head, I probably made about 13% per annum from my investment in Sabana REIT, all in.

Getting into Croesus Retail Trust after its price retreated significantly from its post IPO euqhoria and also by taking advantage of the rights issues later, I am probably looking at a total return of between 70% to 100% for the investments made at different times. 

On an annual basis, if I were to accept the offer of $1.17 a unit, the return on investment is probably between 17% to 60% per year. 

OK, please note that all numbers are off the top of my head and are only approximately right.

Now, quite understandably, not everyone is happy with the offer to take over Croesus Retail Trust at $1.17 a unit. We would be losing a good investment for income, after all.

A few readers wrote to me, asking if I would vote against the sale and a couple of readers also asked that I mobilize my army of readers to vote against the sale.

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Alamak. AK is just another retail investor. AK is no king maker. So stressful.

Seriously, I will not ask anyone to vote for or against the sale but I will share a few points to put things in perspective.

1. With a DPU of about 8c, at 85c a unit, we were looking at a yield of 9.4%. At $1.17, we are looking at 6.8%. Yield has compressed by quite a fair bit.

2. Gearing is almost 50%, if I remember correctly. So, much of the yield we see is leveraged yield. If we should reduce leverage and that is possible through equity fund raising, distribution yield would drop. That makes for a fairer comparison against some retail S-REITs which have less than 40% in gearing.


3. It is not useful to say that $1.17 is X% higher than its price from X months ago. We should be interested in value. $1.17 is about 20% higher than the NAV per unit. 


Now, if we remember, Saizen REIT was bought over at a premium of about 3% above NAV and that was when I thought Saizen REIT's properties were probably worth more than what was carried in the books too. Also, remember, Saizen REIT's gearing was much lower than 50%.

4. It is true that even a compressed distribution yield of 6.8% is higher than comparable J-REITs' yields but we have to remember that the rules governing J-REITs are different which was an important reason why Croesus Retail Trust decided to list in Singapore. If they were to list in Japan, their DPU and, consequently, their distribution yield would have been lower.

Unfortunately, investors of Saizen REIT grew weary of waiting for value to be unlocked and agreed to its sale of assets. 

What about investors of Croesus Retail Trust? Obviously, many have a different attitude and are more willing to wait for a better offer, if any. Of course, being paid while waiting is not a bad deal.

This is interesting to me because Saizen REIT was a big investment for me and Croesus Retail Trust is a big investment for me too. I wonder.

Related post:
History with CRT and current thoughts.

"I like what I see. So, I stay invested."

8 comments:

Seeking Private Returns said...

Wow, congrats AK!

Switching from one winner to another winner. No wonder you're a big name in the blogger investing world. Pei fu pei fu!

AK71 said...

Hi SPR,

Thank you. I have been mostly lucky. :)

Cory said...

i have been following since Tsunami. God of fortune always almost at your side. Not that it take away your credit though. Your selection mostly right.

AK71 said...

Hi Cory,

Since 2011? Wow. Time flies, doesn't it?

I have been mostly lucky as an investor. :)

redponza said...

Hi AK,
May you please further elaborate what are the differences between J REIT and S REIT?

I read quite a bit on J REIT and found that their yields are low while gearings are high, seems an unusual combination to me =.=

Also FYR is the take away of some 2017 distributions available to unit holders:
---
the distribution of 4.06 cts is for the whole period from January 1st up to October 31st., 2017 ! This is effectively for 2 final quarters of FY17 PLUS one quarter and one month of FY18, and the dpu is only 4.06 cts ? Isn' t this too low ?

Looking at the following workouts :-
1) For Q1, Jul 1st till Sep 30th., 2016, the dpu was 1.79 cts.
2) For Q2, Oct 1st till Dec 31st., 2016, the dpu was 1.81 cts.
3) For Q3, Jan 1st till Mar 31st., 2017, the dpu declared but not paid out yet was 2.05 cts.
4) What about the dpu for Q4, Apr 1st till Jun 30th. ? Let' s assume the dpu amt is the same as per the previous qtr, ie 2 cts.
5) Then, what about the dpu for Q1 FY18, Jul 1st till Sep 30th., 2017 ? Again, let' s make an assumption here, ie similar with the previous quarter, = 2 cts.

Hence, totalling up 3), 4) and 5) above (without taking nto account one more month of October, 2017), the estimated dpu payout should be around 6 cts, right ? Why is it only permitted to pay out only 4.06 cts (as the Permitted Distributions) ??????????
---

Thanks.

arithmos said...

Thank you AK71. I appreciate your analysis on this. It is very readable, easy to understand. I agree with you.

One reason is I can't find any alternative to CRT. so my vote is still no.

Saizen and next Croesus RT, the last jap play is AGT which I have loaded up a bit in earlier times. Looks like need to load up some more on this, I wonder ...

AK71 said...

Hi redponza,

It has to do with accounting regulations and pay out structures. You might want to watch the video I shared at the end of this blog in 2014 if you are interested to hear from the CEO of CRT:

2014 full year income from non-REITs.

As for the DPU, you might want to put the question to the management. ;)

AK71 said...

Hi arithmos,

I will wait and see how things go. ;)

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