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.