Croesus Retail Trust: AK makes a suggestion.

This blog post is in reply to a reader's question on Croesus Retail Trust: here.

Hi Capricon,

Not that I know of, no. Of course, I could have missed it. -.-"

I know the management is caught in a situation where they really want to seize acquisition opportunities because commercial property prices are rising fast in big cities in Japan.

However, the biggest advantage of being a business trust has been blocked by the management's own promise not to gear beyond 60%. After their recent two acquisitions, they don't have much left in terms of debt headroom.

I do not see how a higher unit price will help them to borrow more money since gearing is calculated based on the value of the properties in the Trust and not its market cap.

If they want to do another acquisition without having gearing cross beyond 60%, the way is to do equity fund raising either through rights or placement.

Actually, Jeremy Yong could consider something else. The Trust could issue perpetual bonds because they are treated as part of the equity structure. So, gearing would actually drop and the Trust would have the money to do more acquisitions. As long as the NPI yield is higher than the coupons to be paid on the bonds, unit holders will benefit. However, if the Trust does this, I hope the bonds are in JPY and not in S$.

Do you have Jeremy Yong's contact details? If you do, send him an email and tell him what AK suggested. Of course, I do not know if it is practicable or not. Just a crazy idea, perhaps. ;p

Related posts:
1. Croesus Retail Trust: Luz Omori and Liz Wave I.
2. Perpetual bonds: Good or bad?

Gear up and receive more passive income.

I have mentioned before that I rather not have any debt in my life. 

This does not mean that I don't understand how debt can be good. 

It just means that I am more comfortable not having any.

I rather not borrow money to invest in stocks even though it could potentially give me higher returns.

I rather not borrow money to pay for consumption items which definitely is a road to wealth destruction and, in severe cases, obliteration.

However, in an environment of very low interest rates (still), some think I am being silly not to take advantage of the cheap money sloshing around.

For sure, used sensibly, debt can help to enhance gains in investments. 

Of course, if things should go wrong, the damage would also be magnified. 

So, as you can imagine, whenever the issue of debt crops up, inevitably, we will have debates.






We might not have debt in our personal lives but we might be invested in business entities which have debt. 

If we are invested in REITs and a business trust like Croesus Retail Trust, we are invested in entities which have debt.

Simplistically, debt could increase income available for distribution per share provided that the cost that comes from having it is lower than the income received from the additional investment. 

So, debt could make more money for us. This is probably a financially sensible reason to take on debt.

However, is it financially sensible to introduce debt in our personal balance sheet to invest in REITs and a business trust like Croesus Retail Trust?

A reader, let us call him Mr. Gear, told me that he could borrow cheaply at an interest rate of 2% per annum, invest in a REIT that offers a 7% distribution yield and the spread of 5% is free money. 

Sounds good, doesn't it? 

Well, as long as we have the status quo, yes.

So, how long will the status quo last? 

Does anyone know? I don't.





In the event that risk free rates go up which is more likely to happen than not and Mr. Market demands higher distribution yields from REITs, we could see unit prices declining again.

With a distribution yield of 7%, a 1% increase in risk free rate will mean that unit price will have to decline some 12% to give Mr. Market the 8% distribution yield that he demands. 

A 2% increase in risk free rate will mean a decline of 22% in unit price in order to give a 9% distribution yield.

So, all else remaining equal, if the risk free rate should go up by 1% within the next 2 years, Mr. Gear could lose almost all the income he would have collected. 

If the risk free rate should go up by 2% within the next 4 years, Mr. Gear could lose almost all the income he would have collected over the same period. 

If the risk free rate should go up sooner than expected by 1 or 2%, Mr. Gear could end up losing some money and not just the income collected.





Although I still believe that REITs are relevant for income investors, do we want to gear up our personal balance sheet to invest in REITs for passive income now?

To me, peace of mind is priceless and this is a risk I rather not take.

I would still invest in Croesus Retail Trust, for example, only if I have money to spare. 

To me, being able to get a non-leveraged property income yield of some 5% for owning malls in Japan is pretty attractive. 

This is the kind of yield that we would get if Croesus Retail Trust were debt free.

Investing in a Trust that distributes 90% to 100% of its income, we have to be prepared for the possibility of equity fund raising in the form of a rights issue. 

So, although the estimated distribution yield at 87.5c is about 10%, if we are prudent, we would put aside some of this income.

For someone like Mr. Gear who is thinking of borrowing to invest in REITs, he must be pretty sure that he is able to take on more low interest rate debt to fund his participation in a possible future rights issue.

So, gear up to receive more passive income? Not me.




Related posts:
1. The secret to avoiding financial ruin.
2. Don't think and grow rich.
3. Croesus Retail Trust: Much ado about Yen.

Helping our parents invest their money.

This blog post is inspired by what I read at Bully the Bear. The blog master is now helping his parents manage some of their savings to secure higher returns. The money would have gone into fixed deposits, otherwise. Read: Why my parents are so eager to invest.

My parents also leave money in fixed deposits which they say give them a peace of mind. Whether it is a good idea or not is, of course, open to debate. However, peace of mind is priceless. If they do not wish to put their savings in "risky" investments, I won't go against them. This also gives me a peace of mind because if the "risky" investments turned out badly and I was the one who asked them to invest, then, it would be a nightmare of epic proportions.

Photo taken when I went on a cruise with my parents.

In recent years, however, my mom saw how my investments delivered regular income and instead of being purely a market speculator, she decided to have me help her invest some of her money. She now gets more than $1,000 in passive income from stocks per month which is a nice bit of extra money for a person in her 60s.

More recently, my dad asked me if I could help him invest some of his savings as well. Of course, I have to do it. Why? He is my father. No other reason needed.

I told him that I could possibly get an 8% yield for him but the principal sum will have to be locked up for at least 5 years. That was my only condition. So, he has to be sure that it is money he will not need. At the end of the 5 year period, he will get 100% of his capital back if that is what he wants or he could stay invested.

How am I going to achieve this over the next 5 years? Honestly, all things remaining equal, with great difficulty, I suspect.

I could consider investing in the following:

1. Sabana REIT
2. Croesus Retail Trust
3. SPH
4. NeraTel
5. Hock Lian Seng

There are many things we can say about Sabana REIT but the distribution yield is rather attractive with unit price just 1c shy of $1.00 and there is a chance it could go a bit higher with an occupancy level of under 92% now. This allows ample room for improvement.

Croesus Retail Trust has retreated in price since going XD. It is now close to my entry price. This Trust is going to deliver a higher distribution yield than Sabana REIT and if things go the way I expect them to, it could do even better in future.

SPH has always been a favourite of mine as a blue chip investment for income. With the listing of SPH REIT, I like SPH more now and increased my long position in the stock last year. SPH will increasingly morph into an asset light property play even as it tries to reverse the decline in its traditional print business.

Regular readers will remember how I increased my long position in NeraTel by 10x last year in an effort to divert resources into stocks which will not be affected badly by any increase in interest rates. NeraTel is still a net cash company with strong earnings which should see meaningful improvements over time as the company sets up offices in new markets.

Hock Lian Seng is an investment I have held for a few years now. I initiated a long position in the stock shortly after its IPO. It has a strong balance sheet and rather stable earnings. It pays out about 40% of its earnings as dividends. It is one of those stocks that I almost forget I have until it is time for it to pay a dividend again.

If I were to divide my dad's money into 5 equal portions and invest in the above, I estimate that I could possibly get a yield of about 7%.

So, how am I going to deliver the estimated 8% yield?

I am going to cheat.

OMG! AK is going to cheat!

Bad AK! Bad AK!

OK, I am so ashamed of myself. You can stop reading now.

Pause.

Pause.

Pause.

Er... Still reading? You really want to know?

Let there be light!

OK, then, my plan is to keep the money that my dad is entrusting to me in my war chest. Then, I will deliver the 8% yield from my existing investments while I wait for prices to go lower before accumulating with bigger margins of safety.

There is no hurry for me to buy anything from Mr. Market. Well, maybe I could increase my investment in Croesus Retail Trust which I believe is rather attractive if 87c should be retested.

What if prices did not retrace lower but stay at current levels or go higher?

Well, anyway, I have always planned on using a good part of the income that is generated by my portfolio to support my parents when they are no longer working. So, this proposed arrangement is just a matter of utilising my passive income earlier than planned.

It will make my dad happy and that gives me a peace of mind.

Note: If anyone is wondering whether to start an investment portfolio based on the 5 securities I have highlighted in this blog post, please read the disclaimer found at the end of the page first.

Related posts:
1. A strategy to grow wealth and augment income.
2. Hock Lian Seng: DPS of 1.8c.
3. Croesus Retail Trust: Luz Omori and Niz Wave I.
4. SPH: Results are within expectations.
5. Sabana REIT: Am I buying or selling?

Saizen REIT and Croesus Retail Trust: Much ado about Yen.

A reader sent me an email and expressed worry that the JPY might weaken further against the S$. With exposure to Saizen REIT and Croesus Retail Trust, he is worried.

For sure, the JPY has weakened dramatically in the last 2 years (and a few months) against the S$. By now, it has weakened some 25% or so. It might weaken further or it might not. I am sure there are arguments made in favour of both cases.

I think, as investors, we have to know clearly what is our motivation for investing in Saizen REIT and Croesus Retail Trust. If we are investing for income and if we have not overpaid in either case, I feel that we have little to worry about.

Luz Shinsaibashi, Osaka.

Both Saizen REIT and Croesus Retail Trust hedge exchange rate risk. So, even if the JPY were to weaken another 10% in the next six months, their next income distribution in S$ will barely be affected. Similarly, if the JPY were to appreciate significantly in the next six months, don't expect any big gain in DPU, everything else remaining equal.

Of course, the income distribution after the next could be hedged at an even lower exchange rate if the JPY is weaker by then. Yikes! Yes, this is one of the risks that comes with investing in anything that receives income in a foreign currency.

With Saizen REIT trading at 88c a unit and giving a DPU of about 6.5c, we are looking at a yield of 7.38%. Croesus Retail Trust is trading at about 89c and will offer an annualised DPU of about 9.3c, by my estimate, or a distribution yield of 10.44%, after its recent acquisitions. Double digit yield, anybody?

Of course, we have to remember that Saizen REIT has a much stronger balance sheet compared to Croesus Retail Trust and that they own different types of properties.

In the event that the JPY weakens another 5 or 10%, what would the impact be on the distributable income in S$ terms? Yield falls to 6.64% for Saizen REIT and to 9.45% for Croesus Retail Trust? Is that so unpalatable? Is that a catastrophe?

Photo of the Great Buddha in Kamakura I took on a trip in December 2011 when JPY was at its highest against the S$.

Investing for income is supposed to give us some measure of equanimity even if the equity market sails through a storm. If the slightest hint of choppy waters scares us to bits, we might want to look at our motivation for being invested again and also check to make sure that we have not invested with money we might need in the next few years.

There must be a reason for our fear. Find it.

Related posts:
1. Saizen REIT: Is the DPU sustainable?
2. Croesus Retail Trust: Recent acquisitions.
3. Motivations and methods in investing.
4. Be comfortable with being invested.

Croesus Retail Trust: Luz Omori and Niz Wave I.

I really shouldn't be blogging now because I am so sleepy but I just couldn't resist looking at the announcement and, then, I'm trapped. OK, this will be a short one (I hope). Here are some things which got my attention.

DPU Improvement

In an earlier blog post, I said that the Trust would probably use the funds from the MTN they issued soon. Otherwise, we could see a 5% decline in DPU.

Now, with the acquisition of 2 new properties, Luz Omori and Niz Wave I, we will see a 5.7% increase in DPU instead of having to worry about a 5% decline. Good news for income investors!

Borrowings

The two properties are purchased at a slight discount to valuation which is good. However, the total value is still some $176.3 million. This is much more than the $100 million MTN the Trust issued last month.

In an earlier blog post, I was wondering if a placement or a rights issue would happen. Instead, the Trust has taken on more onshore debt, specifically, a 5 year debt facility with Mizuho Bank. They were able to borrow rather cheaply and the effective interest rate for this debt facility and the MTN together is 2.96% per annum.

With these purchases and borrowings, by my estimate, gearing level has gone up from 42% to approximately 55%.

The properties

The information provided by the Trust is mostly clear enough. I really like the fact that the Trust chose to purchase both the properties in Tokyo. These properties are located in areas which have seen growing populations in recent years and are within a few minutes walk to train stations.

What I want to point out is that Luz Omori's land is not freehold but leasehold in nature. This probably explains the relatively small price tag of S$42.7 million which is also at a slight discount to the valuation of S$44 million. The lease on the land expires in July 2059, 45 years from now.

As for Niz Wave I, the situation is bizarre because the building sits on 4 parcels of land of which 3 are freehold and 1 is leasehold and this lease expires in December 2029, 15 years and a few months from now. Would they have to tear down a quarter of the building then and return the land in original condition? Bizarre.

I am inclined to believe that the owner of that particular land parcel would probably allow the lease to be extended when the time comes since that one parcel of land is unlikely to be of much use to anyone if the surrounding 3 parcels of freehold land are owned by the Trust. Then, the question of price will have to be answered but it can only be answered when the time comes.

NPI Yield

These two buildings together have quite a decent NPI yield of some 8.1%. The 4 malls in the Trust's initial portfolio have an average NPI yield of about 7.8%. So, in addition to being DPU accretive, the purchases are NPI yield accretive but it could possibly have something to do with the fact that Luz Omori sits on land with a relatively short lease. Yields for leasehold properties are generally higher since they are usually cheaper to buy.

See Media Release: here.
See Acquisition Announcement: here.

Related post:
Croesus Retail Trust: Cap rates and growth.

Croesus Retail Trust: Cap rates and growth.

When we invest in a company, it is important to be forward looking. After all, we are investing for the future and not the past. So, although numbers could tell us about the past and the status quo, to forecast performance is a little more difficult.

However, if there is some consistency, then, there could be some measure of predictability. This is probably one reason why many like investing in real estate because their values and rental rates are sticky in the short or even medium term.

Related to this, we often hear people talking about cap rates and some readers have asked me before what exactly are these. Well, cap rate is short for capitalisation rate.

Basically, it is a property's net income as a percentage of its purchase price. So, it is a measure of investment yield. This yield is part of the total return on our investment.

Net income? Yes, you might have seen the acronym NPI before and this stands for Net Property Income. It is basically gross income less expenses. Looking at NPI is more meaningful than looking at gross income, for obvious reasons.

Naturally, we would want to have as high a cap rate as possible if we were to buy a property as investors. This would mean getting as high a net income as possible and/or as low a purchase price as possible.

In a recent interview with Croesus Retail Trust's CEO, he said that it is getting harder to buy real estate in Japan at a bargain as prices have been rising. He also said that the Trust has to move at a faster clip in acquiring another asset.

Clearly, rising property prices will reduce cap rates, all else remaining equal. However, as economic conditions improve and with initial evidence of rising rental rates in the midst of falling vacancy, property prices are more likely to rise than to fall. Expectations are that net income will improve.

So, do I think that Croesus Retail Trust will be delivering a higher distribution yield over the next 12 months? With positive rental reversions at Mallage Shobu expected, everything else remaining equal, yes.

I also suspect that Croesus Retail Trust will be announcing an acquisition soon because:

1. They extended until 31 March 2014 their first right to negotiate for the purchase of the following properties: Mallage Saga, Forecast Kyoto Kawaramachi, NIS Wave I and Luz Omori.

2. They issued a S$100 million MTN last month.

The question is which property would the Trust buy?

Although Croesus Retail Trust is smallish in size given that its initial portfolio of 4 properties has a valuation of JPY 52.5 billion or about S$669 million in total, what can they buy with only S$100 million from the MTN?

Of the four properties in its current portfolio, there are two properties which are closer to S$100 million in valuation:

1. AEON Town Suzuka: S$ 112 million
2. Luz Shinsaibashi: S$ 119 million

Very likely, the Trust's next purchase will be similar in value to these two based on the size of the MTN issued. Of the four properties for which their rights of first refusal (ROFR) have been extended, I wonder which one would it be. Whichever property the Trust decides to buy, however, a completed and mature mall will probably be a DPU accretive acquisition.

Having said this, if each of the four malls on the acquisition list has a valuation of more than S$100 million, then, we might see a private placement taking place. If this should happen, we might or might not see any DPU accretion.

If the Trust should want to purchase two or more malls at once, then, I believe we could see a rights issue. Of course, that would allow all existing unit holders to participate and if the assets to be purchased have attractive cap rates, it should be a good thing.

I hope the management of Croesus Retail Trust does not disappoint. Setting a positive tone in the early years of the Trust's operation will boost investors' confidence and the Trust's standing.

Related post:
Croesus Retail Trust: Substantial shareholders are buying.

Croesus Retail Trust: Substantial shareholders are buying.

On 28 January, I blogged about why some retail investors were badly burnt investing in Croesus Retail Trust. This was shortly after I blogged about why the Trust at the price of 87c a unit then was a very good investment for income.

In the blog post of 28 Jan, I said that persistent selling by almost all the substantial shareholders as the Trust's unit price rocketed through the roof to touch a high of $1.18 a unit and then retreated was the main reason why many retail investors were burnt.

The dumbest reason in the world to buy a stock is because it's going up. - Warren Buffett

The only substantial shareholder that consistently increased their stake was Target Asset Management as the Trust's unit price retreated from the high. They increased their stake at 98c, 95c and 96c in May, June and July 2013, respectively.

On 4 February 2014, Target Asset Management increased their stake again by another million units at an average price of 87.35c per unit. Now, they have an 8% stake in the Trust.

For anyone who does not know:

Target Asset Management was established in Singapore in April 1996. It specializes in equity investment in Asian markets. It practices value investing philosophy.

 

The Company was founded by Mr. Teng Ngiek Lian, a former Managing Director of Morgan Grenfell Investment Management Asia and Managing Director of UBS Asset Management, Singapore. Mr. Teng has more than 45 years of industrial and investment experience in Asia.

Source: Target Asset Management.

 

 

Of greater interest to me is the more recent 2.54 million units bought by AR Capital Pte. Ltd.

AR Capital Pte. Ltd. sold down their stake in the Trust from October to November 2013, some at an average price of 86c a unit and I wondered why. They still held a 6.73% stake in the Trust after all that selling.

Recently, on 14 February, AR Capital Pte. Ltd. became a buyer and bought 2.54 million units at 92c a unit. Yes, 92c a unit. I am baffled.

Why did they sell low and buy high? Many possible reasons come to mind but your guess is as good as mine.

After this recent purchase, AR Capital Pte. Ltd. now holds a 7.32% stake in the Trust.

I took a look at AR Capital Pte. Ltd.'s website. It looks more professional than Target Asset Management's. Very nice. See for yourself: here.

AR Capital was founded by Leong Wah Kheong, who has 28 years of equity investment experience. Prior to starting up AR Capital, he spent 20 years with global asset management firm Schroders, where he was the Chief Investment Officer for Asia Pacific ex-Japan equities from 1996 until his departure in 2005.

Could we be seeing the start of the return of stronger buying interest in Croesus Retail Trust? Honestly, I don't know.

However, I do know that there will always be windows of opportunity for investors to buy good income producing assets at prices that offer good value for money.

These investments could possibly turn out to be for keeps.

Related post:
Croesus Retail Trust: Why some were burnt and burnt badly.

Croesus Retail Trust: DPU above forecast at 5.24c.

Croesus Retail Trust did not disappoint as expectations that DPU would come in above forecast has materialised. A DPU of 5.24c for the period of 10 May to 31 Dec 2013 will be paid on 31 March 2014. This means a 6.02% return for anyone who got in at 87c. Not bad.

Some numbers
(as at 31 Dec 2013):

Gearing: 41.8%
Interest cover ratio: 5.9x
All in cost of debt: 1.59%
100% of debt hedged.
Occupancy: 100%
NAV/unit: JPY 74

We could reasonably expect performance to improve in future as more expiring leases in Mallage Shobu, one of the Trust's 4 malls, are replaced with new tenants. Already, two tenant replacements have shown positive rental reversions.

Hopefully, more AEIs will be carried out and AEIs carried out at Aeon Town Moriya brought in new tenants like UNIQLO which bumped up total income.

If we annualise the Trust's last quarter's DPU of 2.02c, we are looking at 8.08c per annum or a distribution yield of 9.29% for anyone who got in at 87c a unit. Further upside is possible as more tenant replacements take place with positive rental reversions this year.

We want to be reminded that Croesus Retail Trust issued a $100 million MTN and that is not part of the numbers for the period reported here. In a blog post last month, I said:

"The hard numbers tell us that finance costs will jump by some 30% because of this S$100 million MTN and unless put to good use it will also reduce DPU by about 5%. So, the funds raised should not be left idle for too long."
See:
Croesus Retail Trust: Overnight BUY order filled.

So, I would also want to see the Trust make a DPU accretive acquisition very soon. Of course, this should mean more distributable income for unit holders.

For anyone who believes that Abenomics will snap Japan out of 20 years of deflation and that Japan's economy will be revitalised, investing in Croesus Retail Trust is a decent enough proposition even at the current price of 90c a unit. This is especially true for anyone who wants a meaningful stream of income from an investment with a good chance of capital appreciation thrown in over the next 2 to 5 years.

See presentation slides: here.

Related posts:
1. Croesus Retail Trust and Perennial China Retail Trust.
2. Added more Croesus Retail Trust.
3. Croesus Retail Trust: Initiated long position at 87c.

Croesus Retail Trust and Perennial China Retail Trust.

I had a discussion with a friend over dinner last night regarding Croesus Retail Trust (CRT) and why I feel relatively good about it as an investment for income. 

In the conversation, one of the things I did was to compare it against Perennial China Retail Trust (PCRT).

When PCRT had its IPO, I said that only "Red Star Macalline Global Home Furniture Lifestyle Mall, Shenyang, which was completed on 30 Sep 2010 is income contributing at listing date. The rest of the initial portfolio is expected to be completed from 3Q 2010 to 2Q 2014. If we are investing for income, this is not very reassuring."

And I also said that a "distribution yield of 4.88% to 5.51% in the years 2011 to 2012 also does not provide enough compensation for the risks which investors are being asked to bear, in my opinion."
See: Perennial China Retail Trust.

Mr. Market sent PCRT's unit price down 12.86% on its first day of trading from its IPO price of 70c to just 61c. See: PCRT: Weak debut.

Unit price went on a continual decline and was under 40c at one stage. Pua Seck Guan increased his stake while Kuok Khoon Hong and Martua Sitorus became substantial shareholders. I initiated a long position some time later at 47.5c a piece.

"I initiated a long position in PCRT at 47.5c because the distribution yield of 8+% at that price offered a more acceptable level of compensation for the risk I would be asked to assume."
See: PCRT: 1H 2013 DPU 1.9c.

Mr. Market is rather efficient in pricing PCRT's stock. The latest reported NAV/unit is 77c which means PCRT's stock is now trading at a 31.2% discount to NAV! 

Why? Mr. Market has priced in a risk premium.

Although annualising the half yearly DPU of 1.9c will give us a distribution yield of 7.16%, most of the distributable income is from earn out deeds and I highlighted that "current DPU is being sustained by earned out deeds which will be exhausted by end 2014". 

So, what happens then? Income distributions to investors will most probably take a hit. 

See: PCRT: Progress in Q3.

Now, for readers who have been following my recent blog posts on Croesus Retail Trust, they will be able to see the difference I am trying to point out between CRT and PCRT easily. 

CRT's portfolio consists properties which are mature and generating income, all of them. The level of risk which investors are being asked to assume here is very low compared to PCRT's.

Having said this, investing in CRT is not without its risks and I blogged about it briefly before. See: Croesus Retail Trust: Motivations and risks.

I am invested in both PCRT and CRT. So, to some, it might appear silly that I am talking down PCRT but, in my opinion, I am not talking down PCRT or talking up CRT, for that matter. I just say it as it is.

PCRT could do better over time but unit holders must be prepared for a much lower DPU next year as earn out deeds are depleted by end of this year and if the properties completed are not able to pick up the slack fully by then.

CRT offers a much higher level of certainty for the next 2 to 5 years for anyone investing for income and although it is a business trust like PCRT, it is not the same as PCRT. This is why my investment in CRT is about 8x bigger than my investment in PCRT now.

Both PCRT and CRT are business trusts. Same but different. We should not over-generalise.

Related posts:
1. Croesus Retail Trust: What is my plan?
2. Croesus Retail Trust: Overnight BUY order filled.
3. Croesus Retail Trust: Initiated long position at 87c.

Croesus Retail Trust: The EDGE.

A reader kindly informed me that the latest issue of The EDGE has a write up on Croesus Retail Trust. The Trust is, of course, my latest investment and one of only two stocks I have bought in the last three months. So, what has The EDGE got to say?

"... amid the improved sentiments as Abenomics works its way through the world's third biggest economy, one counter considered to be the best proxy in Singapore to Japan seems to have gone unnoticed amongst investors."

1. The Trust's current distribution yield is amongst the best in the world of business trusts and REITs in Singapore and Japan. Current unit price: 87.5c.

2. Business trusts have not been well received in Singapore for various reasons, including their heavy use of debt and less predictable payout.

3. Books revenue in JPY but pays investors in S$.

4. Expects to charge higher rents from this year and the Trust plans to replace more than half of expiring leases with bigger brands.

Some other points were also made but, to be fair to the publication, you might want to get yourself a copy of The EDGE. Article is on page 16. The price went up recently: $5.00 a copy now.

If you want to find out more about Croesus Retail Trust right now, I have been blogging about the Trust lately. Just search for the articles in my blog. Free of charge. Wink, wink.

Actually, I believe that the current malaise in the Trust's unit price has also partly got to do with the fact that the initial euphoria we saw at the Trust's IPO and the eventual bursting of that bubble hurt many retail investors. I know some who were caught. Once bitten, twice shy or so the saying goes.

Well, I rather like to look at out of favour stocks with very attractive attributes for income investors (perhaps, with a dash of growth potential) and Croesus Retail Trust seems to fit the bill.

Related posts:
1. Croesus Retail Trust: What is my plan?
2. Croesus Retail Trust: Initiated long at 87c.
3. Croesus Retail Trust and Saizen REIT.

Croesus Retail Trust: What is my plan?

When I revealed that I had a BUY order queued at 85.5c, a reader was concerned. He said that he bought some units in Croesus Retail Trust at 87c because he read my blogs and how I first initiated a long position at 87c too.

From Winston Koh's FB wall.

Do I think that the unit price will fall a bit more?

Well, I don't know. My bowling ball has been rather quiet lately. Not talking to me. Maybe, I should give it a good rub later but that sounds like work and I am such a lazy guy. Bad AK! Bad AK!

What I do know is that selling pressure seems to have eased, looking at the higher lows in the CMF and the MFI.

Click to enlarge.

The moving averages are all bunching up which implies a very low level of volatility and this congestion in the moving averages will serve to be an important support or resistance in future. In future?

Yes, with the Bollinger Bands having narrowed, I would not be surprised if this period of low volatility should be followed by a big move in unit price in the near future.

Big move? Up or down? Well, if I should hazard a guess, with the CMF and MFI the way they are, I would say "up". However, if these should be negated and if unit price were to move down instead, using Fibo retracement lines, the 138.2% golden ratio is at 85.5c.

So, this solves the mystery of why AK71 has put in a BUY order at 85.5c. For those who say they feel safer if they buy at a lower price than me, well, 85c is a possibility too since that is where we find the 161.8% golden ratio.

At 85c or 85.5c, we are looking at a prospective 9.62 to 9.68% in distribution yield, according to guidance provided by the management. It would also mean getting in with a bigger discount to the Trust's NAV.

There is no way I can predict the price movement. However, I do know what I would do in each scenario.

Asking what would we do is more useful than asking what would the price do. 

After all, we have control of our faculties (I hope) but we do not have any control over Mr. Market's actions.

Some numbers (pre-MTN):

From: Presentation to investors (7 & 8 Jan 2014).

Related posts:
1. Croesus Retail Trust: Overnight BUY order filled. (I looked at how the S$100 million MTN could affect the Trust here.)
2. Why some were burnt badly.

Croesus Retail Trust: Why some were burnt and burnt badly.

Some have asked me if it is safe to buy into Croesus Retail Trust now. It has to be safe since I am putting my money where my mouth is, right? Sorry, but the truth is I don't know.

Huh?

Well, I feel that at the current price level, Croesus Retail Trust offers fairly good value for money and I explained why I thought so in earlier blog posts. I also said that 87c represents immediate support from a technical analysis perspective and this support seems to have strengthened today.

Sounds good, doesn't it? Yes, it does but it also pays to remember that Croesus Retail Trust has quite a number of substantial shareholders who most probably have their own agenda. There is no guarantee that they won't sell even at prices lower than 87c, for reasons unknown to us.

The lowest unit price ever was 84.5c but that was probably just some retail investor who threw in the towel. It happens, I am sure all of us know.

Anyway, I went through the filings of insider trades since the Trust's IPO last year in May.

AR Capital Pte Ltd acquired 7.54 million units from 10 May to 10 September 2013 at an average price of 96.3 cents per unit. Strangely, they sold 3.576 million units from 14 to 16 October 2013 at an average price of 86 cents each. Then, they sold 1.286 million units on 28 November 2013 at 87.9 cents each. Now, they still retain a stake of  28.757 million units or 6.73%.

Why would they sell at a loss in October and November? Did they make a mistake increasing their stake from May to September? Perhaps they had to do some portfolio balancing?

DBS Group Holdings Ltd became a substantial shareholder on 10 May 2013 after it acquired 34.929 million units or 8.21% of the issued capital via placement at 93 cents each. The group sold 12.84 million units from 28 May to 27 November 2013. The highest sell price was $1.07 and the lowest was $0.86.

While they were selling, DBS Vickers was issuing BUY calls with target price of $1.14. Now, try to reconcile that.

The only substantial shareholder who has been consistently increasing their stake is Target Asset Management. They bought another 1.9 million units on 30 May 2013 at 98 cents each. Then, they bought 530,000 units on 28 June 2013 at 95 cents each. The last time they bought more was on 27 July 2013 when they bought 450,000 units at 96 cents each.

They now hold 29.79 million units which places them ahead of AR Capital Pte Ltd.

Plenty more happened where insider trading is concerned at Croesus Retail Trust and it is obvious that many substantial shareholders took the opportunity to sell soon after the IPO as the unit price retreated from a high of $1.18 a unit.

Nikko Asset Management Asia Limited with a 22.25 million units stake then started selling on 14 May 2013 at $1.10 a unit. On 15 May 2013, they sold again at $1.09 a unit and on 17 May 2013, again at $1.08. At some point in May, they ceased being a substantial shareholder.

Similarly for Hwang-DBS (Malaysia) Berhad, they ceased being a substantial shareholder after selling from $1.08 to $1.10 a unit in May 2013.

The Amundi Group only started selling at the end of May 2013 and by 5 June 2013, they ceased to be a substantial shareholder. The prices they sold at were from 98c to 99c a unit.

Now, I didn't spend the last hour and a half going through all these and presenting them in a blog because I had a morbid fascination for SGX filings. It is very obvious that there are lessons to be learnt from this and I think I don't have to spell them out.

I also do not want to spell them out in case trouble comes knocking on my door.

I have no doubt that some people were burnt and burnt badly. Imagine getting in at $1.10 or higher. However, if I were in their shoes, I might want to look at Croesus Retail Trust again as it is a more attractive proposition at 87c now.

Oh, my goodness. I have been sleep blogging again. I need to see a doctor before my condition worsens.

Related posts:
1. Stock market analysts. (I was just beginning to blog.)
2. When to BUY, HOLD or SELL?
3. Buy Japanese real estate. (Another oldie from 2009.)
4. Croesus Retail Trust: Overnight BUY order filled.
5. Nobody cares more about our money than we do.

Croesus Retail Trust: Overnight BUY order filled.

I entered several BUY orders last night and one of these was a BUY order for Croesus Retail Trust at 87c which was the price at which I initiated a long position last year.

I decided that the expected market weakness today would be a good opportunity to increase exposure to the Trust because of an encouraging set of numbers. Using the information provided at its IPO, I estimated the distribution yield to be 8.5% when I got in at 87c a unit last year.

However, with a higher than forecast DPU now expected, distribution yield at 87c a unit has bumped up. According to the management's annualised figure, distribution yield should approximate 9.46% at 87c a unit. This is very attractive for the kind of assets the Trust holds.

Even if we are a bit conservative which was my attitude towards estimating the DPU back in November, for anyone buying in at 87c a unit, a 9% distribution yield is quite realistic.

Given the fact that most of its income is hedged against foreign exchange fluctuations for two years and that the bulk of its loans are locked in for 5 years at a very low interest rate, DPU level in S$ terms is more or less protected. This is probably an important consideration for anyone investing for income.

What might change the DPU level is the S$100 million 4.6% MTN issued just a few days ago. These notes are due in 2017.

4.6% is pretty high compared to the interest rates of the Trust's JPY loans. However, just like in the case of AIMS AMP Capital Industrial REIT which also issued notes last year attracting higher costs compared to conventional bank loans, the access to a different funding source increases the level of funding flexibility and, some might say, security. The higher cost of funds is justifiable.

If I were to hazard a guess, I would say that the management has identified potential acquisitions and with NPI yield for malls in Japan hovering at about 6% in general, any acquisition is likely to be DPU accretive. If this were the case, then, there is no fear of distribution income being negatively impacted.

We must, however, still keep an eye on the numbers.

The hard numbers tell us that finance costs will jump by some 30% because of this S$100 million MTN and unless put to good use it will also reduce DPU by about 5%. So, the funds raised should not be left idle for too long.

This is how I would look at the issue of the S$100 million MTN. Simply saying it is not cheap or it is expensive is not very helpful in our decision making process or is it?

If Mr. Market should continue to feel depressed and decide to sell even more cheaply, I would probably be buying more. There would be an even greater margin of safety then.

See slides presentation of 13 Jan 14: here.

Read about the $100 million 4.6% MTN: here.

Related posts:
1. Croesus Retail Trust: Initiated long position at 87c.
2. Croesus Retail Trust: Motivations and risks.

Sabana REIT: After the 4Q 2013 results, am I buying or selling?

Someone asked me why I didn't blog about Sabana REIT's latest results.

Answer?

There isn't much to say, really.

I did a piece on 17 October 2013 shortly after its 3Q results were released. In that blog post, there was a paragraph which said:

"Taking the DPU of 0.18c from 24 Sep to 30 Sep 13 as a guide, I estimate a DPU of 2.16c for 4Q 2013. This is a 10% reduction from 2.38c for 3Q 2013."

To find out how the estimate was made, read:
Sabana REIT: 3Q 2013 results and outlook.

Sabana REIT announced a DPU of 2.19c for 4Q 2013 which is 0.03c, some 1.38%, higher than my estimate. Not a good enough reason to bring out the lion dance troupe, perhaps, but at least it did not fall below my estimate.

The REIT is now trading at its NAV of $1.07 a unit and I would not be surprised if its unit price were to fall by a few cents upon the REIT going XD. Mr. Market is not feeling optimistic about REITs lately and Sabana REIT's performance has been disappointing.

Although it would be too optimistic to think that Sabana REIT could achieve 100% occupancy again in the near future from the current 91.2%, to think that there would be no improvement over the next 12 months would be too pessimistic.

So, if Mr. Market expects at least an 8.5% yield from Sabana REIT which is some 2% higher than what market leader Ascendas REIT gives, then, it would be reasonable to expect Sabana REIT to trade at $1.03 a unit upon going XD, annualising its current DPU.

Sabana REIT's unit price could recover in the course of the year if the management could fill up some of the vacant space and improve its DPU, everything else remaining equal.

So, although I do not see any compelling reason to add to my long position in Sabana REIT at current price, I will remain pragmatic. There is no compelling reason to reduce exposure too.

Related post:
Added more Croesus Retail Trust and reduced Sabana REIT.

Home of Luz Shinsaibashi, a mall owned by Croesus Retail Trust.

10 March 2017:
Reader:
I am at Osaka, is this the trust that is listed in Singapore?



----------------------------
I just published a blog post on Dōtonbori in Osaka.

This is, of course, the place where we find Luz Shinsaibashi, a mall owned by Croesus Retail Trust.

If you are interested to see more photos of Dōtonbori, come to my travel blog: here.

Related post:
Croesus Retail Trust: Motivations and risks.

A strategy to grow wealth and augment income (2013).

I am primarily investing for income and in my last blog post, in what has become a yearly practice, I revealed my full year income from S-REITs as well as how they fit into my investment strategy. They are relevant to income investors but with the spectre of rising interest rates in the years ahead as well as a peaking in the real estate cycle here, it is sensible not to be overly optimistic about S-REITs in general.

So, apart from a large purchase made in Saizen REIT in the middle of 2012, I have devoted most of my resources to stocks. These should be undervalued and are likely to continue growing for years to come. Since I want to have income from my investments, I would also like for these stocks to pay dividends.

Marco Polo Marine's yard in Batam.

Now, with these stocks, the main strategy is to buy and hold. However, I am not averse to trading around my investments. So, I could divest partially or fully if it is a good idea to do so. For 9M 2013, I revealed that I locked in gains of S$188,625.13. Has the number changed?

Well, I mentioned that I partially divested my investment in Sabana REIT last month. This added S$12,860.03 to gains from trading in 2013.

So, total trading gains in 2013 is S$201,485.16.

What about adding to my long positions?

What I hope to do primarily is to identify good companies, initiate long positions in them at fairly good prices and then wait to add to these positions if there should be bad news which send their share prices down. These are companies which I am comfortable to stay invested in for years, knowing that they possess some competitive advantages which differentiate them.

Warren Buffett famously said that we should invest with the thought that the stock market could close the next day and not reopen for five years. What does this mean?

Invest in stocks of companies which we are confident will do better over the next five years. We wouldn't be bothered by any volatility in their stock prices in the meantime unless it is to add to our long positions with greater margins of safety. If we understand this, we will know what stocks to avoid. How? Do an inversion.


With this in mind, in the last three months, I added to my long positions in NeraTel and Yongnam as their share prices declined due to bad news which I believe are neither long term nor recurring in nature. I have received fairly good dividends from these stocks and I also made some money trading these stocks earlier in the year.

I also added to my long position in SPH. I was paid both the special dividend and the year end dividend for this as well.

Marco Polo Marine is still my single largest investment although its share price has not declined significantly enough for me to add to my long position. The much higher dividend per share paid out recently was a bonus.

I also retain long positions in CapitaMalls Asia and Wilmar International. These are strong companies and leaders in their fields. They are likely to do better in future.

So, was anything new added to my portfolio?

I initiated a long position in Croesus Retail Trust and even added to this position by using funds freed from a partial divestment of Sabana REIT.

Wait a minute? Didn't I say that I am wary of rising interest rates and a possible peaking of the real estate cycle? Yes, I did but Croesus Retail Trust owns malls in Japan and the BOJ is bent on keeping interest rates really low. Abenomics demand this. The Trust has a relatively low cost of debt which is locked in for 5 years.

Luz Shinsaibashi.

Japan has also suffered from continual deflation for 20 years. If anything, the real estate cycle should have a greater chance of bottoming than peaking. Anecdotal evidence tells of a recovering real estate market in recent months that is likely to pick up speed in future.

Although my strategy, with a generous dose of luck, has worked well this year, I can only hope that it will continue to work in the new year.

To grow wealth and augment income? Yes, indeed, that is the plan.

Related posts:
1. 2013 full year income from S-REITs.
2. Yongnam: Substantial shareholder increased stake.
3. NeraTel: Added to my long position.
4. Marco Polo Marine: Exciting times ahead.