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Croesus Retail Trust: Acquisition of ONE'S MALL.

Monday, September 1, 2014

I had expected some form of equity fund raising and although I was hoping that it would be a rights issue, I was not surprised that a private placement has been chosen instead. It is more expeditious, after all.

However, it does not mean that I am happy about it since, in all likelihood, I won't be one of those "other investors" who would be offered new units in the Trust to be priced between 89c and 92c per unit. What? Unit price was about $1.00 when you last looked? Wow! 89c would be a steal, wouldn't it? Bummer.

Anyway, the acquisition of the new (freehold) mall, ONE'S MALL, in Greater Tokyo will cost about S$132.5 million.

The private placement is expected to raise S$70.2 million to S$72.6 million. The Trust will also be drawing upon a Japanese local bank loan for most of the shortfall (equivalent to S$74.1 million) at an interest rate of 1.29% per annum. I like the natural hedge that comes with this and also the very low interest rate.

A much smaller amount of S$6 million will be drawn from the Fixed Rate Notes issued in January this year. To utilise funds from the Fixed Rate Notes minimally is a good move as it attracts a higher interest rate of 4.6% and it is also denominated in S$. So, there will be some FOREX risk but it will be miniscule here with only S$6 million drawn.

Overall, income distribution per unit (DPU) is not expected to receive much of a boost with this acquisition because it is half funded by the private placement. Expect an increase of only 0.2% in DPU. Expect NAV/unit to increase by only 0.1%.

What about gearing level? As the purchase is about half funded by the private placement, gearing level stays more or less unchanged, reducing from 51.7% to 50.5%.

Nothing to be too excited about.

See announcement: here and here.

Related post:
Croesus Retail Trust: 4Q FY2014 DPU improved.


AK71 said...

The Trustee-Manager wishes to inform unitholders of CRT (“Unitholders”) that in addition to the semi-annual distribution of 3.74 cents per Unit for the period from 1 January 2014 to 30 June 2014 (“2H FY2014 Distribution”), the Trustee-Manager intends to declare, in connection with the Private Placement (as defined herein) and in respect of the Units in issue on the day immediately prior to the date on which the New Units are issued (the “Existing Units”), an advance distribution for the period from 1 July 2014 to the day immediately prior to the date on which the new units in CRT (“New Units”) are issued pursuant to the Private Placement (the “Advance Distribution” and together with the 2H FY2014 Distribution, the “Cumulative Distribution”).

The current expectation of the Trustee-Manager is that the quantum of the distribution per Unit (“DPU”) under the Cumulative Distribution will be approximately 5.40 cents per Unit1, based on a DPU of 3.74 cents per Unit under the 2H FY2014 Distribution and an estimated DPU of approximately 1.66 cents per Unit under the Advance Distribution. A further announcement on the actual amount of Cumulative Distribution, based on the finalised amount of Advance Distribution (which may differ from the estimate above) will be made by the Trustee-Manager in due course.


AK71 said...

The manager of Croesus Retail Trust said it has entered into a purchase and sale agreement to buy One’s Mall for JPY11 billion ($132.5 million).

The consideration represents a 5.2% discount to the independent valuation of JPY11.6 billion.

One’s Mall is located in the Inage Ward in Chiba, a city that is 40km southeast of Tokyo. It complements CRT’s asset portfolio in the Greater Tokyo district and increases exposure to the recovering Japanese economy where the retail sales sector has grown 1% year-on-year in 2013.


Siew Mun said...

Wouldn't the placement placement at 89 - 92 cts cause a double whammy? Both share dilution and 'discount' to current share price.

AK71 said...

Hi Siew Mun,

It depends on what is our understanding of "dilution"? To me, there isn't any dilution because I am more concerned about DPU. To people concerned about the percentage of CRT they own, then, there is dilution.

Equity fund raising will usually see new units offered at a discount to the last traded price. I don't see is as a "whammy" per se. I see it as a great opportunity for new investors (in this case) to get in cheaper.

Siew Mun said...

Thanks, I plan to initiate a position after 8 Sep ex-date. I believe share price will go down further. What is your school of thought of intiating a position after ex-date versus before ex-date?

AK71 said...

Hi Siew Mun,

I don't have any opinion on the approach you mentioned. I buy when I feel that it provides good value for money. ;)

anon said...

Hi AK,
I read somewhere that MAS regulations stipulate S-REITs without a credit rating, are required to cap their gearing below 35% while those with a rating are allowed to go as high as 60%. I have also read somewhere a 40% gearing; don't know how this 40% relates to 35% &/or the 60%. Which ruling is correct?
Also, is there an online site which lists all S-Reits and their credit & non-credit rating?

Amos TEO said...

Hi ak

Any simple reason you think that could be behind Mr Tong decrease in CRT shareholding based on announcement today?


AK71 said...

Hi jojo,

S-REITs without a credit rating are allowed a gearing of up to 35%. Those with a credit rating are allowed gearing of up to 60%.

Just check the websites of those REITs you are interested in for credit rating info. Nothing beats first hand information. ;)

AK71 said...

Hi Amos,

Mr. Tong's interest in Croesus Retail Trust decreased from about 20 million units to about 12 million units on 29 August. That is a 40% reduction. Quite significant.

I am sure he made good money since his purchase price in April this year was about 90c a unit.

Croesus Retail Trust's unit price could decline after the counter goes XD. So, it could be a good move on the part of Mr. Tong.

Honestly though, only Mr. Tong knows why he sold. :)

Amos TEO said...

Thanks for the reply.

i read in the edge mag before, mr tong also sold some suntec reits share when there was a placement that dilute his shareholding. When questioned, he did state that he has won some money, so took profit.

Maybe this is more less the reason.

so today initial 3cents fall to 95.5 has nothing to do with his sale issit?

AK71 said...

Hi Amos,

I do not know if Mr. Tong sold more of his investment in Croesus Retail Trust today. The filing you mentioned was for what happened on 29 August.

I wouldn't be too bothered by why he is selling as long as I am sure Croesus Retail Trust remains a good investment for income for me. :)

Betta man said...

Croesus fell to $0.955 after going XD on 8 Sep.

Time to load up more ?

AK71 said...

Hi betta man,

I know someone who bought more at 96c today. I am not buying because I would like to have a bit more margin of safety. :)

AK71 said...

Hi Capricon,

Dilution of DPU? The answer is in the blog post, actually. ;)

Yield is partly a function of the unit price. So, I wonder what I should do if I want a higher yield, all else remaining equal? ;p

AK71 said...

Last year, CRT acquired Luz Omori and Croesus Tachikawa (formerly known as NIS Wave I) in March and One's Mall in October. Better tenant sales at Mallage Shobu contributed to the positive results.

Income available for distribution per unit (“DPU”) for the period ended 11 September 2014 and 31 December 2013: 2.5c.

(1.66 cents advance distribution for the period from 1 July 2014 to 10 September 2014 was paid on 26 September 2014.)


AK71 said...

Hi Capricon,

I invest primarily for income. So, I will take cash. :)

The JPY is now the cheapest I have ever seen it. It is around JPY1,000 to S$11.30, the last time I checked.

Personally, I don't know what Mr. Abe and his team will do but I know that if the JPY were to weaken a lot more from here, life would get even harder for the Japanese people. Inflation is better than deflation but too much inflation makes life difficult.

As for the gearing level, I believe that the status quo is OK for at least another couple of years. Interest rates will remain low in Japan and the cashflow from the malls should stay healthy.

Will there be a cash call? I don't know. If it should happen, I will have to see if it makes sense for me to participate in it when the time comes. ;)

AK71 said...

CROESUS Retail Trust, a property trust focused on Japanese malls, on Thursday reported a distribution per unit (DPU) of 1.9 Singapore cents for its third quarter ended March 31, 2015, an 8 per cent increase from the 1.76 Singapore cent DPU recorded in the corresponding period last year, and a 2.7 per cent increase from its forecast of 1.85 Singapore cents.

This came on the back of a steep surge in gross revenue, which jumped 42.4 per cent to 1.98 billion yen from 1.39 billion yen in the year-ago period, and 58.2 per cent above the forecast 1.25 billion yen, mainly due to the contributions from Luz Omori and Croesus Tachikawa, which were acquired on March 6, 2014, and One's Mall, which was acquired in Oct 16, 2014.


AK71 said...

CapitaLand on Friday said CMA Japan Trust plans to acquire Vivit Minami Funabashi - a shopping mall in Greater Tokyo - for 3.05 billion yen (S$33.1 million).

Vivit is a shopping mall located in Funabashi city in Chiba Prefecture, in Greater Tokyo, Japan. Vivit is part of the portfolio of assets held by CapitaMalls Japan Fund Pte Ltd, which is managed by a wholly owned subsidiary of CapitaLand and in which CapitaLand has an interest of 26.3 per cent.


AK71 said...

Croesus Retail Trust with seven properties in Japan said on Wednesday its distribution per unit (DPU) for the fourth quarter rose one per cent to 2.02 Singapore cents from a year ago, lifted by foreign-exchange gains and lower administrative expenses.

Income available for distribution for the three months ended June 30, 2015, rose 23.9 per cent to 876.7 million yen (S$10.4 million).

For the full year as at end-June 2015, DPU was up 2.8 per cent year on year to 8.08 Singapore cents.


AK71 said...

"The events of the last two weeks have been a wake-up call that risk is creeping back into the market," Jeremy Yong, co- founder of the Croesus Group, said in an interview. "We will have to price in uncertainty in the market so we are trying to be sharper by adding in a component of risk to price these assets now."

Despite being more cautious about the terms of the deals they strike in this market, Croesus won't stop seeking targets, according to Mr Yong. The retail trust, listed in Singapore, is looking for acquisitions outside of Tokyo in search of higher returns, in cities such as Osaka, Fukuoka and Nagoya, which have good demographics of population and tourism, Mr Yong said.

Croesus is backed by Japanese builder Daiwa House Industry Co. and trading house Marubeni Corp, which has seven retail properties in Japan. The trust acquired the One's Mall in greater Tokyo last year.

Total assets in the trust rose 28 per cent in the year ended June 30, to 100 billion yen (S$1.16 billion), the company reported Aug 26.

The average cost of debt has been declining since its listing in 2013, Mr Yong said. The trust's yen-denominated cost of debt has dropped from about 1.4 per cent to about 1.2 per cent and further acquisitions will lower the cost to 1 per cent, he said.


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