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Croesus Retail Trust: Initiated long position at 87c.

Friday, November 8, 2013

I love Japan and with the Japanese Yen so low now, I am planning a trip to the Land of the Rising Sun in December. 

This might have something to do with why I initiated a long position in Croesus Retail Trust. You think so? Nah.

Croesus Retail Trust is a business trust which owns 4 shopping malls in Japan. Its IPO in May priced its units at 93c a piece which meant a slight premium of 3.3% over its NAV of 90c a unit.

Luz Shinsaibashi is a new retail building in Osaka.

The Trust dangled a distribution yield of 8% and investors lapped it up, pushing the unit price to a high of $1.18 on the first day of trading. 

An auspicious number for the Cantonese people perhaps as it sounds like "prosper everyday" but not for those who bought some then. 

Unit price declined over the next 4 months to touch a low of 84.5c on 17 Sep for an almost 29% drop.

Buying at a discount to NAV and getting a relatively high yield is an attractive combination for me. The bug bear is the relatively high gearing level of about 44%. 

Any yield accretive acquisition will probably be funded through a blend of debt and equity. So, for someone who might not have the resources to participate in a rights issue, this is something to bear in mind.

Although trading at a discount to NAV and offering a relatively high distribution yield, there was nothing to prevent unit price from declining further after touching 84.5c on 17 Sep. The good news for unit holders is that it did not.

Indeed, unit price seems to have found a floor with many times tested support at 85.5c. The confluence of the 50d and 20d MAs form the immediate support at 87c. 

With the downtrend broken and unit price moving sideways now, I decided that downside risk has reduced from a technical perspective.

The 180 days lock-up for the sponsor and their strategic partners in the Trust will end sometime this month. Will they sell 50% of their stakes? 

With trading volume so low, it could drive unit price down by quite a few notches if they should do so. Well, I simply don't know.

What I do know is that at 87c per unit, I am buying at a 3.33% discount to NAV and I will receive an estimated 8.5% distribution yield. 

If price action should test the support at 85.5c, I might buy more because there would be a bigger margin of safety then.

Now, I look forward to the Trust's first income distribution which is expected to be paid in March 2014.

Related post:
Invest in Japanese real estate: Croesus Retail Trust.

23 comments: said...

Hi AK,

You bought Croesus? Thought you're a big fan of Saizen :)

The high yield looks attractive, but quite worried about this high gearing ...

SGYI said...

Hi AK,

I'm interested in this now. haha.

Attractive 100% payout for the first 2 years. With Japan striving to grow their economy, interest rates will remain low as QE is launched. Consumer prices will rise and people will start buying things as they no longer defer buying due to deflation.

Can i ask did you manage to get the financial report for this trust? How did you get the NAV? Would be glad if you could share it :)

Anyway, i found some pictures of one of the retail mall under this trust:

A good way to have a feel of the mall you're investing into. ;)

ron said...

Be cautious with seafood... radiated water is everywhere.

AK71 said...

Hi boonchin,

I still like Saizen REIT but I don't know if I like it enough to be a fan. ;)

Croesus Retail Trust's gearing is rather off putting. However, when I consider the fact that its cost of debt is about 1.6% plus the fact that its loans are locked in for 5 years, it doesn't look so bad. :)

AK71 said...


Initially, 100% of income will be distributed to unit holders. :)

At current price level, I feel that we are getting a fair offer from Mr. Market. Not a crazy cheap offer but it is probably a fair one. So, I initiated what I feel is an appropriate position.

I relied on secondary sources for the NAV of the Trust. There are estimates from 88c to 93c. :)

AK71 said...

Hi veronika,

My last visit to Japan was almost 2 years ago (when the Yen was really very expensive). I think I have yet to glow in the dark. ;p

Maybe it is because I am not a big fan of seafood. -.-" said...

Hi AK,

What's your view when comparing Croesus and LMIR?

Both are in retail sector with high DY and their currencies are weakening? But Japan population is aging while Indonesia population is exploding. Will Indonesia turns out to be a more attractive market?

B said...

I still think the fact you are going to Shinsaibashi in Dec have some influence on your purchase :D Nah... Just kidding ^^

AK71 said...

Hi boonchin,


I have always liked Indonesia and I have mentioned how it was one of only 3 Asian economies that didn't go into a recession during the GFC. That is amazing as it shows how resilient the economy is.

So, it is only logical that I like First REIT and LMIR for their exposure to Indonesian healthcare and retail sectors, respectively.

As for Japan, its unfavourable demographics have received much attention continually. However, it would be overly pessimistic to think that the Japanese are going the way of the Dodo in the near future. ;)

I would say that if an investment in the country is able to generate for investors a yield that compensates sufficiently for the less favourable demographics, amongst other things, it could still be a good investment.

Also, although it could be a long shot, Abenomics could turn around an economy that has seen 20 years of deflation.

There are early signs that things are improving and if the momentum should carry forward, it would be nice if we could ride the wave up in the coming years. :)

AK71 said...

Hi B,

Haha... I am looking forward to the trip to Osaka as the last time I was there must be some 5 years ago. Or was it 6.

The trip 2 years ago was to Tokyo and its surroundings after some 15 years! You know, I still like Osaka more. :) said...

Hi AK,

Thanks for the reply. Always able to learn something from you :)

AK71 said...

Hi boonchin,

You are welcome but I must also add that although I am comfortable with the investment at the current price level, you have to decide if you are comfortable too.

If for some reason, you don't feel comfortable about it, it is probably best to avoid. :)

SnOOpy168 said...

Just in :

CRT’s first income available for distribution and net property income exceeded the forecast by 8.3% and 3.1% respectively. In addition, CRT’s available distribution per unit (“DPU”) is 3.26 Singapore cents for the period from 10 May 2013 (being the date of listing of CRT) to 30 September 2013. This is an increase of 4.6% over the forecast1 DPU of 3.11 Singapore cents.

Lets see if they can do better for Q2. ^-^

AK71 said...

Hi SnOOpy168,

With a hedge in place, I don't think results will stray much in the next two years, barring unforeseen circumstances.

In such instances, the important thing is to get in with a MOS. With prices where they are now, I believe I got in with a small MOS. I hope so anyway. :)

Are you a fellow unit holder? ;)

SnOOpy168 said...

Yes. I had a small position just days before the CD announcement. Delighted but still fearful of biz trust.

My Cityspring is still in the red. Perhaps I should cut lost and save my shirt

AK71 said...

Hi SnOOpy168,

Peter Lynch said that all investments are good at the right prices. Something like that.

I am sure that for people who got into CitySpring at depressed prices, they must have done quite well too.

I cannot say much about CitySpring as I have not looked at it for a long time. The last time I blogged about it was 2 years ago: CitySpring Infrastructure Trust: Worth another look?

I've given the Trust a wide berth since divesting.

Ray said...

Hi AK,

Did CRT declare the dividends? I can't find it in SGX's company disclosure.

AK71 said...

Hi Ray,

First income distribution is expected to be paid in March 2014 and just like it was the case with Sabana REIT's first distribution two years ago, I expect it to be a biggie. ;)

Ray said...

So, how did you calculate that the yield of CRT is around 8+%? is it in the initial offering info?

SGYI said...

Actual dividends declared is 3.26cents. Higher than the orginally forecast DPU of 3.11cents.

AK71 said...

Hi Ray,

In their recent financial report, the DPU was higher. However, to keep it simple, I used information provided at its IPO. So, a higher distribution would be a nice "surprise". ;p

8% yield at 93c (IPO price) gives me a projected DPU of 7.44c. If we bought in at 87c, it would give us a distribution yield of 8.55%. :)

ryan said...

DBS increased its stake in CRT on 31 Dec:

AK71 said...

Hi ryan,

300 lots at 88.5c a unit. Cool. :)

Thanks for the update. ;)

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