CRT is offering 229.118m Units at $0.93 per unit for an IPO on the Singapore Exchange. The prospectus is here.
It is the first retail business trust with properties in Japan to be listed in Singapore. The IPO will close on 8 May 2013 12pm and be listed on 10 May 2013 at 2pm. 207.613m will be for placement and 21.505m for the public.
Business Trusts Versus REITs
CRT is offered under the business trust structure. While previously i have been cautious on business trust structures, i think my perception has since "improve slightly" as there is no reason for Sponsors not to stick to what they have "promised" unless something detrimental happens. In other words, the Sponsors should continue to pay 90% or 100% of the cashflows back to unit holders even though it is not mandated by laws here.
However, having said that, the underlying business is important and retail income is definitely one of the more stable business vis-a-vis, say a shipping or hospitality trust. Retailers don't move their shops every other month and are typically locked in for years.
CRT intends to distribute 100% of its distributable income from Listing Date till 30 Jun 2015 and thereafter at least 90%. As discussed, the actual level of distribution is still determined by the Trustee-Manager and not mandated by law and we have to trust the Manager to "stick to their promises".
The projected yield is pretty attractive at 8% given that a lot of yield compression have already taken place on SGX. Most of the retail REITs such as CapitaRetail China or Capitamall or even Mapletree Greater China Trust are now trading at between yields of 4-5%.
The pictures are below. Frankly i haven't been to these malls but in my view, that is secondary if we are comfortable that the sponsors are reputable ones and i have seen many "Aeon" malls in Japan while on my trips there.
The biggest contributor to the income is no.4 above. Mallage Shobu but you can see that the rental income are evenly distributed among the 4 properties. No key concentration risk.
The properties are freehold properties, currently 100% rented out and has a weighted lease expiry of 11.3 years. You can see that the tenants are locked in for the long term!
According to reports, the demand for the placement tranche was overwhelming and many were cut back. The usual cornerstone investors are mostly reputable "long term" holders. You can find their profiles in the prospectus.
What I like about CRT
- Properties are focused on the retail sector and income will be stable.
- Japan is currently the "in place" to invest (surprisingly) under the new PM Abe.
- Strong sponsors in Daiwa and Marubeni and they have given voluntary ROFRs for sale of future real estate in Asia ex Japan. Both the sponsors are listed on the Tokyo Stock Exchange and have significant combined market caps of more than S$28b,
- Good pipeline of assets in Shenyang and Shanghai without the developmental risks and an additional 4 Japanese properties.
- Investing in JPY/SGD at a 10 year low as mentioned in my earlier preview post.
- Strong institutional demand for the units.
- Economic prospects have not been good in Japan for the last 10 years but that might be improving and the retail sector is still more resilient than the rest.
- High leverage of around 44%, which will affect the company's cashflows if interest rates goes up.
- Earthquakes or natural disasters but this should be covered by insurance.
Assuming a fair value yield of 6-7%, the price should have a fair value range of between $1.06 to $1.24. It is a 3 chillis for me and Hoot ah. :)
ps - sorry i did this in a hurry knowing many "fans" are asking for the report. Have to go now and i didnt have time to find out about the NAV which should be around par,