Daiwa House Logistics Trust: FX and TA.

The unit price of Daiwa House Logistics Trust has declined 32c or almost 40% in the last 6 months.

This is pretty dramatic.

Although I was unimpressed by Daiwa House Logistics Trust at its IPO and had some concerns, I did not expect its unit price to crash so hard.

At the end of June this year, when a reader asked if I was interested in Daiwa House Logistics Trust as its unit price had declined, I raised a new concern which was the persistent weakness in the Japanese Yen.

Unlike the ECB which is raising interest rate, the Japanese central bank seems determined to keep interest rate low which is depressing the value of the Japanese Yen.

In reply to the reader who asked if the lower unit price made Daiwa House Logistics Trust a BUY back in July, I said that if the Yen was stronger, then, the REIT would be undervalued.

Unfortunately, it wasn't.

I said:

"Since the Yen declined so much, then, a similar decline in unit price doesn't make it (i.e. the REIT) undervalued."

More recently, just a few days ago, the Yen hit a historic low against the U.S. Dollar.

With this recent development, Daiwa House Logistics Trust's unit price has sunk even lower.

I said in my last blog that China was getting very hard to read.

Japan isn't much easier either.

Why is the Japanese central bank so stubborn?

All investments are good investment at the right price.

Unfortunately, at the moment, I do not know if it is the right price but as long as the Japanese central bank is bent on their current course, Mr. Market doesn't know either.

I do not see any positive divergence in the chart as MACD and RSI decline in tandem with the unit price.

I don't have an interest in Daiwa House Logistics Trust.

Just a quick blog sharing my response to a query from someone I know.

Daiwa House Logistics Trust was priced too dearly at IPO and we now have a persistently weakening Yen thrown into the mix.

On hindsight, it might have been a blessing in disguise that Saizen REIT, Croesus Retail Trust and Accordia Golf Trust were forcibly removed from my portfolio.

Recently published:
CLCT: Staying defensive and Chinese banks?

Reference:
Daiwa House Logistics Trust: Good or not?

Saizen REIT: TKs.

When I was a soldier in the Singapore Armed Forces, I learned a Hokkien phrase with the abbreviation "TK". It was one of those inane things that I picked up during those two and a half years that somehow got stuck in my mind. If you don't know what the abbreviation is, here is a hint: It has to do with size and a part of the male anatomy. OK, no more.

Anyway, today, I replied to an email from a reader about TKs. However, these are TKs of a very different nature. These are the TKs of the Japanese business world.

Hi AK,

I am currently trying to understand more about Saizen Reit, a stock that you happen to own. Hence, I would like to ask if you could share with me the structure of the REIT. I was reading their annual report and I could not understand the jargon.

Can you kindly explain about what is the relationship between Saizen and the TK operators because I do not understand who actually owns the properties. Thanks in advance for your help. 

I am a noobie trying to learn more about this Reit and I got confused by its structure.

Warm Regards,

KF

Hi KF,

The TK structure is one way foreigners can invest in Japanese real estate. It is a typical Japanese real estate investment structure, in fact. The TK or Tokumei kumiai is a legally binding contract.

So, when we buy into Saizen REIT, we are buying into a foreign investor that has a stake in these TKs. Saizen REIT has contributed money to the TKs and has the right to share in the profits but Saizen REIT is not allowed to run the TKs. This is why there are TK operators who are actually the local operational managers in Japan.

In case you are wondering, Saizen REIT is entitled to 97% of the profits generated by the TKs.

The investors own the assets in the TK, not the TK operators. Saizen REIT has invested money and they own the assets.

Best wishes,
AK

OK, I think I am going to have some rice and "tau kee" stewed in soya sauce for lunch.

See the TK? ;p



Related posts:
1. Deeply undervalued but is it a BUY for you?
2. Saizen REIT: Still a good investment for income?

An eye on Accordia Golf Trust, Croesus Retail Trust and Saizen REIT: 8.1 magnitude earthquake in Japan and the Yen.

On Vesak Day, a huge undersea earthquake was reported 874 kilometers from Tokyo. The epicentre was deep in the Pacific Ocean. Seismologists warned that another quake could be coming. See report here: Japan Today.

Expecting some negative reaction from Mr. Market, I looked at the prices of Accordia Golf Trust, Croesus Retail Trust and Saizen REIT this morning. Of the three, the unit price of Accordia Golf Trust retreated by almost 10%. It was a big decline but it probably had to do with the fact that the counter went XD as well.

Accordia Golf Trust announced their maiden DPU of 5.71c for the 8 months period since its date of listing. This included non-recurring gains. Based on the regular operation of the golf courses under management, it was estimated that full year DPU could come in at 6.23c. However, this was based on an exchange rate of S$1 to JPY 88.4. This was a couple of months ago.

Of course, the JPY has weakened significantly since then. The rate is now S$1 to JPY 92. This rate was last seen in late 2014 and could be the reason for the particular weakness in Accordia Golf Trust when the unit prices of both Croesus Retail Trust and Saizen REIT held up rather well. Accordia Golf Trust is, after all, the only one of the three that does not hedge currency risk and we must rightly expect DPU to reduce in S$ terms, therefore.

If we expect the DPU to reduce proportionally, we might see a revised full year DPU of 5.91c. Buying more at 71c to 72c a unit today means a distribution yield of 8.2% to 8.32%. If we need a minimum yield of 8% to make the investment worthwhile for us, then, based on the current weaker exchange rate, all else remaining equal, we should be able to accept a unit price of up to 74c or so. Coincidentally, this was the entry price of my current long position too.

Further weakness in the JPY cannot be discounted but I have made a case before on why I think the JPY's biggest declines are probably behind us. Getting into Accordia Golf Trust at its IPO was a bad idea for various reasons. At current prices, I believe that the business trust presents a decent enough investment for the income investor.

See an article in NextInsight on Accordia Golf Trust: here.

Related posts:
1. Accordia Golf Trust: Yield of 12.16%?
2. Croesus Retail Trust: ONE's MALL.
3. Saizen REIT: Deeply undervalued.

Saizen REIT: Deeply undervalued but is it a BUY for you?

Regular readers know that I have been invested in Saizen REIT for a long time. Some might even be able to write a script for a K-drama based on my experience with the REIT. Anyway, if you are interested in the history, just use the search function found in the top right area of this blog. I shan't bore you.

I mentioned Saizen REIT in the last "Evening with AK and friends" session and went on to highlight why it is one of my top 3 investments in REITs. I think that episode might have interested quite a few members of the audience as I received not one, not two but three emails asking me whether the REIT is priced fairly now. I must say that the emails weren't phrased exactly like this but they were close enough.

Taken on my last trip to Japan. Love the chocolates. Cheap too.

I will say that we must question, as always, our motivation for thinking of investing in Saizen REIT. Is it for income or capital gain?

For someone who is thinking of capital gain, the fact that Saizen REIT is trading at a huge discount to valuation might be the reason for his interest. At 86c a unit, it is trading at more than 20% discount to its NAV/unit of about $1.10. This is despite the continual fall in the JPY against the S$. Even at its high of 98c touched almost a year ago, it would still have been undervalued based on the weaker JPY today.

The first question we have to ask, of course, is whether the NAV is realistic. The best way to ascertain this is to see what price Mr. Market is willing to pay for the REIT's properties. In September last year, I said that the REIT sold two properties at premiums of 19% and 12.8% above book value. That told me that the REIT's NAV was conservative. In the REIT's February 2015 presentation, they reported that another property was sold at 16% above valuation.

There is some deep value in Saizen REIT's portfolio of freehold residential properties in Japan, I believe. However, whether the value could be unlocked and returned to unit holders is much harder to say. Could we see an acquisition by a residential J-REIT? I know that a substantial shareholder, Argyle Street Management (ASM) was pressing for something to this effect.

So, anyone who is buying into Saizen REIT, hoping for value to be unlocked, will have to be patient and also remember that it might or might not happen. While waiting, Saizen REIT offers about 6c in DPU per year. Based on 86c a unit, that is a distribution yield of about 7%.

For someone who is thinking of investing in Saizen REIT for income, it is important to bear in mind that income is generated in JPY by the REIT's assets but converted to S$ for distribution. There is always risk in foreign exchange rates. What do I think?

Gingko tree. So many of them in Japan.

The JPY has fallen a lot in the last 2 years against the S$. It is my opinion that any further fall is likely to be mild as:

1. The S$ is also weakening because the M.A.S. is mindful that Singapore must remain competitive and with the dramatic fall in the price of crude oil, Singapore's economy has become mildly deflationary of late.

2. The Japanese government wouldn't want to cause hardship for the Japanese people which any greater fall in the value of the JPY might bring. Already, the people are grappling with much higher inflation in prices of imported goods.

Having said this, for the income investor, what is very important to note is that Saizen REIT's loans are amortising in nature. I have mentioned this many times in the past when I was more active in blogging about the REIT. This means that the principle sums shrink over time as they are paid down. Amongst S-REITs, Saizen REIT is probably the only one that has this feature.

Also, amongst S-REITs, Saizen REIT is probably the only one with very long term loans with many maturing in the 2030s and 2040s. Long term loans actually make sense for REITs because property investments are, logically, long term commitments.

Anyway, the point is that because the loans are amortising in nature, Saizen REIT cannot distribute all its income to unitholders. Some of it goes to amortising the loans. However, because Saizen REIT amassed quite a bit of cash from many of its unit holders who exercised their warrants, they are able to use that money to amortise the loans, distributing income as if the loans were non-amortising. One day, this money will run out. Then what?

Then, everything remaining equal, we might see the DPU reduce by two fifths. So, distribution yield might become 4% then. This is something investors in Saizen REIT at the current price must be aware of and be comfortable with.

I estimated before that it would be many years down the road before it happens but when it does happen, the REIT would be even stronger in its balance sheet as its debt burden would have reduced significantly. I like this very much as it would give the REIT more debt headroom to acquire more properties which would mean a higher DPU. In other words, the REIT would be able to grow without having to raise funds from its unit holders.

There are many things which I cannot foresee happening or not happening. Could Abenomics breathe life into Japan's economy in a sustainable manner? Would demand for housing improve, leading to higher occupancy and asking rents? Would the JPY sink much lower?  These are some questions I do not have definite answers to.

However, there are some things that I do know and those are the things that inform my decision to be invested in Saizen REIT, those are the things that tell me Saizen REIT matches my motivation as an income investor. If there should be an unlocking of value sometime in the next few years, it would be a bonus for me. In the meantime, I am quite happy to be paid regularly.

Related posts:
1. Saizen REIT: Sell the entire portfolio?
2. Saizen REIT: Is the dividend sustainable?
3. Saizen REIT: Why did I buy? Would I buy more?

Chats with readers on Japan, bonds, properties, GFC etc.

AK is an accredited kay poh and spends quite a bit of time chit chatting with readers online. When I shared with a couple of fellow bloggers and also some friends that I spend at least 3 to 4 hours online answering questions everyday even if I am not blogging, they were amazed!

Here are some recent chats:

Sent to me by Paul who is vacationing in Japan:

Paul: U come japan so often, they name a burger after u?

LOL!

Then, G thought of buying some bonds:

B had some questions on investing in real estate in Singapore:

E discovered that AK is quite good at side stepping questions:

W had questions about war chests and allocation:

P asked about averaging up or averaging down on our purchases:

I forgot to mention that I kept adding to my investment in Hock Lian Seng over the years when I thought Mr. Market offered me more attractive prices at different times.

I enjoyed all the chats. I hope you did too. ;p

Related post:
An evening with AK and friends: Photos.

Saizen REIT: Sell the entire portfolio or find a larger partner.

One of my more successful investments in the last few years is probably in Saizen REIT and regular readers who have followed the story would be quite familiar with it. So, I shan't repeat the narrative.

In the past issue of The EDGE, it was reported that a major investor in Saizen REIT is unhappy with the lack of growth in the REIT. Well, actually, the fact that Argyle Street Management (ASM) is unhappy isn't anything new and I blogged about my view in November last year.

Now, the CIO of ASM is suggesting that "we either sell the entire portfolio or find a much larger partner." There is quite a bit of frustration but it is probably justifiable.

This is because Saizen REIT's NAV/unit is $1.22 and it is trading at around 90c a unit. If all the REIT's properties were to be sold at valuation, shareholders would receive $1.22 a unit or a 35% gain from the current market price. So, if there should be a willing buyer, selling the entire portfolio at valuation makes sense.

In fact, I am inclined to believe that Saizen REIT's properties are worth much more since they managed to sell a property in May at 19% above book value and another one in August at 12.8% above book value. This suggests that the book values of the REIT's properties are rather conservative.

The REIT's NAV could be about $1.35 to $1.40 per unit. This means a potential capital gain of 50% to 55.5%. It is, however, I believe, harder to find a buyer for the entire portfolio at such high prices.

Well, whether or not the current managers of Saizen REIT are replaced, for me, is less important than how my investment in the REIT could be impacted.

I have examined before the sustainability of the current day DPU and, if I remember correctly, I said it should be sustainable for the next 8 years. Could we see the Japanese economy and currency strengthen in the next 8 years? I don't know but I do know that there is enough resources to maintain the current level of distributions for a few more years. Beyond that, I expect DPU to reduce, everything else remaining equal.

A DPU of 6.3c translates to a distribution yield of about 7% at a unit price of 90c. If I should be paid $1.22 per unit for my investment in the REIT, I would liken it to collecting many years of income distributions in advance which is not a bad thing. A bird in hand is worth two in the bushes, as the saying goes.

So, am I going to increase my exposure to the REIT? No. Why? Isn't it a good investment for income? I believe it is but my exposure to the REIT is already quite large and I estimate it to be some 12% or 13% of my entire portfolio. My only other two investments which are bigger are AIMS AMP Capital Industrial REIT and First REIT. I don't see any need to increase the weighting of any of these REITs in my portfolio.

What if I did not have any exposure? Well, if I should be happy being paid a 7% distribution yield buying into rather undervalued freehold Japanese residential real estate, I might initiate a long position. Then, all that is left for me to do is to wait.

Related posts:
1. Saizen REIT: Good investment for income?
2. Saizen REIT: Undervalued.
3. Saizen REIT: Is the dividend sustainable?

Accordia Golf Trust: At what price is it a BUY?

Some readers asked me at what price would I be interested in Accordia Golf Trust since I have said that I was not willing to pay the IPO price of 97c a unit, believing that it did not represent good value for money although it promised a 7% distribution yield.

Some asked me if they should start buying once the unit price goes under the NAV per unit of 92c because with its IPO in Singapore just 0.7x subscribed, it could see unit price sinking quite rapidly on the first day of trading.

Of course, I almost never give a clear answer to questions like this.




However, I will say that although it could be nice to buy something below its NAV, when we are investing for income, we really want to see whether the level of income that is being generated is attractive enough and how much of that promised income to be distributed is sustainable.

To do this, I looked into the Trust's gearing. The first observation is the very high gearing level of about 53%. That is similar to Croesus Retail Trust's current gearing level and yet Accordia Golf Trust could only promise a distribution yield of 7%.

Next, I looked at the way its debt has been structured. Long term debt really consists of three term loans of JPY 15 billion each.

The first term loan is for 3 years and the cost? 1.25% +
The second term loan is for 4 years. 1.5% +
The third term loan is for 5 years. 1.75% +

What is that "+" for? Cost of debt is actually a base percentage + the 6 months JPY TIBOR. If you don't know what TIBOR is, it stands for Tokyo Interbank Offered Rate which is forecast to be about 0.3%.

I feel that the TIBOR is likely to stay low for some time as Prime Minister Abe keeps borrowing costs low to encourage economic growth and works towards a targeted sustainable inflation rate of 2% per annum for the country. So, there could be some comfort there despite the high gearing level.

Just like Saizen REIT's loans, the term loans here are amortising in nature. Per term loan, the Trust has to pay JPY 75 million half yearly starting 31 March 2015. This means JPY 75 million x 6 in a year starting 31 March 2015. Per year: JPY 450 million.

On top of this, interest payment if estimated on the high side using 2% is about JPY 0.9 billion or 900 million

With total annual comprehensive income at almost JPY 6 billion, yearly debt repayment will be about 22% of annual comprehensive income from March 2015 to July 2017. In August 2017, the 3 year term loan will have to be fully paid.

Of course, by then, let us hope that the Trust would have found some way of refinancing since it would probably be impossible for them to pay off the remaining JPY 13.6 billion or so in the first term loan using internal resources.

Accordia Golf Trust's guidance is to pay out 90% of its income to unit holders from the 2nd year onwards but what is the distributable income available then? Ah! That is a question people might not have asked as they simply assumed that it would be 90% of the first year's DPU.

At the exchange rate of S$12.20 to JPY 1,000, assuming an annual comprehensive income of S$73.2 million and almost 1.1 billion units in issue, we would get a DPU of 6.65c if 100% of income is distributed to unit holders. If we should expect that only 78% of comprehensive income would be available for distribution from March 2015, then, DPU falls to 5.2c. If we still want that 7% yield, then, unit price has to fall to 74c which is a 24% decline from the IPO price.

Now, if only 90% is to be distributed, DPU could be as low as 5.2c x .9 or 4.68c.

So, at what price would I be interested in initiating a long position in Accordia Golf Trust? Let me talk to my bowling ball and I hope it is in a talkative mood.

Related post:
Accordia Golf Trust: 7% distribution yield.

Accordia Golf Trust: 6.8% to 7% distribution yield.

A new business trust is set to list in Singapore and it owns golf courses in Japan. The IPO is expected to price the units between 97c to $1.00 each and distribution yield is going to be between 6.8% to 7%.

I have not looked at the prospectus but I tried to understand how the manager is compensated. It is frankly quite complicated to me. It isn't as straightforward as a trust involving real estate. See if you understand it: Golf Course Management Agreement (page 3).

I also looked at some published figures and I am not sure that the assets are doing very well:



Click to enlarge.

I would draw attention to "net income per share" and "dividend per share". Interesting, isn't it?

See: financial highlights.

Could Accordia Golf Trust see a meteoric rise in unit price like Croesus Retail Trust did during its IPO? Your guess is as good as mine. However, I know that I will be giving the IPO a miss.

Read article:
Accordia Golf Trust to list on SGX.

Related post:
High yielding business trusts: A discussion.

Apartments with rental yields of 4.95% to 7.3%.

In the INVEST section of The Sunday Times, it was reported that more Singaporean investors are feeling bullish about investing in Japanese real estate. 

One agent who is marketing Japanese residential properties said that he would not have expected the craze he is seeing now when he started just a year ago.

It seems that local banks are also jumping onto the bandwagon as UOB and OCBC now provide loans to Singaporeans for purchases of Japanese real estate for up to 70% of the property's value. A year ago, only Bank of China was providing such loans.

Someone who bought a 275 sq ft studio apartment in Tokyo last year for $400,000 is very pleased that he did so. Apparently, similar apartments now go for some 9% higher in price.

I believe in investing in real estate for income. So, what I would like to know is how much is such a property able to generate in rental income. It was not reported in the article.

A search online shows that similar properties in central Tokyo could fetch some $1,800 a month in rent which gives a gross yield of 5.4% per annum. Not bad.

So, am I interested in buying an apartment in Japan now for rental income? Well, apart from the fact that prices are a bit higher now which means that the gross yield for the same 275 sq ft apartment is probably lower now in the region of 4.95%, everything else remaining equal, I am also not comfortable with the idea of plonking so much money in one single property in a country which arguably I am less familiar with than Singapore.

If we were to take a loan for 70% of the value of the property (current value being $436,000), we would still have to fork out $130,800, not including other costs related to the transaction. This is quite a bit of money for most average Singaporeans.

Of course, the beauty of this arrangement is leverage. Taking a 70% loan would mean amplifying the rental yield by more than 200%. So, the gross yield on cost, based on current prices of similar properties, could be above 10%. 

Another attraction of such a purchase is the possibility of selling the property for capital gains in future.

If we are pretty risk averse and would buy such properties without taking any loans, I believe that becoming unit holders in Saizen REIT would make more sense.

1. Buying into Saizen REIT means buying into a portfolio of more than 130 residential buildings (not individual apartments) across Japan which reduces concentration risk.

2. Buying into Saizen REIT means buying these residential buildings at a hefty 20% discount to valuation. I do not think we will be able to buy an apartment in Japan at 20% below valuation.

3. Buying into Saizen REIT means getting a 7.3% distribution yield with current unit price at about 88c. This could reduce to 5.7% if cash of up to 20c per unit were to be returned to unit holders. (Read related post number 1 below.)

4. Buying into Saizen REIT means having a team of managers take care of our properties and we don't have to worry ourselves with work such as rental collection, hedging against foreign exchange risk (if at all possible) and the repatriation of funds.

For someone who is investing for income, who does not wish to take on too much risk and who rather not have too much work in being a landlord, given a choice, investing in Saizen REIT seems like a pretty good idea compared to buying a single apartment in Japan.

Related posts:
1. Is the half yearly DPU of 3.25c sustainable?
2. Below valuation and replacement cost.
3. Fukushima and investing in Japanese real estate.

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 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: 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.

The one and only AK Cup Ramen!

During my vacation in Japan last month, I went to the Instant Ramen Museum.

The Momofuku Ando Instant Ramen Museum Insutanto-rāmen Hatsumei Kinenkan) is a museum dedicated to instant noodles and Cup Noodles, as well as its creator and founder, Momofuku Ando. The museum is located in Ikeda in Osaka.

There is also a noodle factory where visitors can assemble their own personal Cup Noodles from pre-made ingredients for a small fee of 300 yen. (Source: Wikipedia).

This was what I made:

Tonight, I had it for dinner. Oishi!

If you are interested in looking at my travel photos, please visit my other blog: Travel Photos and Videos.

Buy a property below valuation AND replacement cost!

Someone asked me why I don't consider buying new built Japanese apartments for investment since I feel that a reflation is underway in the country.

Why Saizen REIT?

The value of the residential properties owned by Saizen REIT is below their replacement cost.

Buying at a discount to valuation is great but buying at below replacement cost is even better! When I invest in Saizen REIT now, I am buying at a discount to valuation buildings which are valued below replacement cost! How crazy is that?

Want to compete with Saizen REIT and other incumbents by building new similar apartment blocks? Must be bonkers to do so.

So, supply is not growing and demand seems like it could grow with Abenomics gaining traction. Things could look better in the next few years for Saizen REIT.

Related post:
Saizen REIT: Insiders are accumulating.

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?



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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.