Croesus Retail Trust: 22 for 100 rights issue.

Some time ago, I mentioned that due to the relatively high gearing level, I expected further acquisitions made by Croesus Retail Trust to be funded through new equity or a blend of new equity and debt.

In their acquisition of another mall in Japan, Torius in Fukuoka, funds will be raised partially through a rights issue. 

Some details:

1. 114,222,677 Rights Units. 

2. Issue price of S$0.610 per Rights Unit.

3. 22 Rights Units for every 100 existing Units held.

I very much prefer a Rights issue to a share placement because the former allows all unit holders to participate. I also like Rights issues if the money is used to purchase good quality income producing assets which would lead to DPU accretion.

Based on the purchase price, the NPI yield of Torius is 7.8% while Croesus Retail Trust's portfolio's NPI yield is 5.3%. So, the purchase is NPI yield accretive. However, due to the enlarged float, post Rights issue, we would see only a slight increase in DPU.

By subscribing to the Rights, I am putting my trust in the management to extract more value from the property as they have hinted at AEIs and future positive rental reversions.

I will fully subscribe to my Rights entitlement at 61c per Rights Unit and I will also apply for excess Rights, as usual. If I am successful in getting some excess Rights, it would improve the distribution yield of my investment in the Trust.

During the one week or so when nil-paid Rights are being traded (9 Oct to 19 Oct), we could see some weakness in the Trust's unit price. That could be an opportunity to accumulate.

Also, if the nil-paid Rights are priced attractively, I could buy more. For example, if we think that, post acquisition and Rights issue, a fairly good unit price to pay for Croesus Retail Trust is 80c a unit, then, if the nil-paid Rights should trade at anything lower than 19c a piece, it could be a good deal (80c - 61c).

I certainly hope that this rights issue would present opportunities for me to add to my investment in Croesus Retail Trust at more attractive prices.

Read announcement: here.
See Press Release: here.
"Nil-paid" Rights trading period from 9 October 2015 to 19 October 2015. The closing date and time for subscription for Rights Units by Unitholders is 23 October 2015 at 5:00 p.m. (9.30 p.m. for Electronic Applications through ATMs of Participating Banks).

Related post:
Croesus Retail Trust: ONE'S MALL.

9M 2015 passive income from S-REITs.

The stock market has declined a fair bit in the last three months. For a while, there was some panic. Even now, there is probably a lingering sense of unease in the air.


We must know what to do when presented with a situation. Knowing what to do depends on our own set of circumstances and also motivations. 

Recently, a reader asked me if she should sell a stock which she said she bought at a much higher price some time ago. 

I asked her to consider if she would buy that stock now at the current price if she didn't buy it at a much higher price earlier.

We want to buy at a price we would not sell at and to sell at a price we would not buy at.

There isn't a universal right or wrong answer. At least I do not believe there is. We could each have an opinion on something's value or the lack of it.

Anyway, what have I done in the last three months?

In the last three months, in the S-REIT space, I added IREIT Global to my portfolio as its unit price declined. I like the properties the REIT holds but I thought its IPO price unattractive.

To own freehold office buildings in Germany, arguably the strongest economy in Europe, is an attractive idea. At the current unit price, an 8% distribution yield is achievable.

My initial investment in the REIT is not a big one. In fact, it is relatively small and probably gives me only a toehold.

IREIT Global's relatively high gearing level and the weak Euro are pertinent concerns. 

However, IREIT Global's loans are in Euros. So, they do have a natural currency hedge. This is unlike LMIR's situation. 

Having said this, I feel that the largest decline in the Euro against the S$ could well be behind us. The S$ has weakened considerably as well. 

My reasoning here is really similar to my earlier reasoning on how we shouldn't see much more weakness in the JPY against the S$ when considering whether to invest in Saizen REIT or Croesus Retail Trust.

I also added to my long position in Soilbuild REIT at the end of August, paying 75c per unit, having avoided adding to my position as the REIT's unit price rose to the mid 80s earlier.

I like the fact that the REIT benefits from the shifting of certain commercial activities from office buildings to business parks which form a relatively big percentage of its assets.

I believe that Soilbuild REIT and AIMS AMP Capital Industrial REIT are well managed industrial properties S-REITs. They will face challenges as the economy soften but they should be more resilient than office REITs which predominantly have office space in Singapore's CBD.

Next, I think it is probably timely to comment on a development which has been gaining momentum in the S-REIT space.

Many S-REITs have DRPs (or DRIPs), Distribution Re-investment Plan. Some readers asked me if I would take part in these plans. 

My answer is that I invest in S-REITs for income. So, I would usually take the cash distributions unless there is a chance to benefit from arbitrage which happened once before for AIMS AMP Capital Industrial REIT and some might remember that I blogged about it.

We must stay realistic. Remember that S-REITs' unit prices could come under pressure in the short term. What is short term? Maybe, the next one or two years.

Many S-REITs' unit prices have already declined somewhat in recent months. This is probably in response to interest rates which have risen because the S$ has weakened quite significantly against the US$.

When the US Fed finally moves to increase interest rate by, say, 0.25%, before the end of the year we might see a knee jerk reaction which could send S-REITs' unit prices lower as risk free rate rises.

Taking distributions in cash would give us more resources to take advantage of such a situation if it should come to pass.

I do not think that S-REITs' distribution yields would rise to the levels seen a few years ago during the Global Financial Crisis but the possibility that we could see yield expansion happening exists.

To be sure, there is really no need to be pessimistic. S-REITs remain relevant tools for income investors. They are not going to go kaput. We should try to stay pragmatic.

How much? Oh, sorry, I have been rambling.

Total income from S-REITs for first 9 months in 2015: S$73,139.35.

This works out to be S$8,126.59 per month.

Related post:

6M 2015 passive income from S-REITs.