Google adsense

Saturday, 4 May 2013

Croesus Retail Trust ("CRT")

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%.

Initial Properties

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.

My Concerns
- 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.

Fair Value

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,

Happy IPOing


Anonymous said...

My sincere thanks. You put this up despite your urgent schedule.

Anonymous said...

Thanks! But for some reason I can't seem to see the images. Anyone else?

Anonymous said...

Same here. Can't see the images

Anonymous said...

[[ Anonymous7 ]]

On earthquake risk :

See Pg 78 of the final prospectus.

"All the Properties are located in Japan, a country with a relatively high risk of earthquakes of high
magnitude and frequency. Earthquake insurance will not generally be maintained on the
Properties, except where the Probable Maximum Loss (as defined herein) for a Property is in
excess of 15% of current building replacement construction cost. Probable Maximum Loss is
defined as the probable maximum loss (i.e. repair and reprocurement expenses) that would be
incurred if a major earthquake struck. Specifically, it means the loss generated by the largest
earthquake that has a 10% probability of occurring during a 50 year assumed service life of a
building corresponds to earthquakes that have a probability of occurrence once every 475 years."

Anonymous said...

[[ Anonymous 7 ]]

More on earthquake risk

Pg 145 of final prospectus

"The industry practice in Japan is to procure earthquake insurance for retail properties only where
the Probable Maximum Loss for a property is in excess of 15%. None of the Properties have a
Probable Maximum Loss in excess of 10%. As a result, CRT has not procured earthquake
insurance for the Properties.
Based on the factors above, the Board is of the view that the insurance coverage for the
Properties is adequate."

Anonymous said...

[[ Anonymous 7 ]]

I think in the longer term, this will be a 2 (out of 3) chilli affair.

There may be some JPY devaluation which is probably manageable, and some earthquake risk, so if the unit price remains at least stable -- that would be fine.

I think a JPYSGD devaluation of up to about 15% from current levels would not perturb the share price too much.

rating is 2 out of 3 chillis.
The FX risk, in theory, can be managed by the Business Trust.

Mr. IPO said...

I also realised no pictures. Will re upload when I am back in Singapore.

Anonymous said...

[[ Anonymous 7 ]]

RE : Cornerstones

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.


See Pg 71 and Pg 72 for these "Cornerstone" investors.

Some of these "Cornerstone" investors are obviously playing with printed money. Quite obvious from the names, reputable or not.

The retail component of this offering is still rather small at only about S$19 (nineteen) million. That's all that the Business Trust is trying to raise from the retail public.

Anonymous said...

[[ Anonymous 7 ]]

re : ... to find out about the NAV which should be around par


See Pg 41 of Final Prospectus for Pro Forma Unaudited Balance Sheet.

In JPY terms, the loans to shareholder funds is about 90%.

As for NAV, that is about 90.78 Singapore cents based on the FX rate quoted in the prospectus of about SGDJPY=79; the current rate has appreciated to about 80JPY.

Ie, the JPY has depreciated against SGD by about 1.25% since the Prospectus was prepared.

Anonymous said...

[[ Anonymous 7 ]]

A little more on that Pro Forma Balance sheet.

Pg 84-85 lists some caveats to the Balance Sheet figures, the most important are :

• Adjustments to reflect CRT’s issuance of 425,319,998 units at S$0.93 per unit as part
settlement for the purchase of the Properties amounting to S$395.5 million;

• Drawdown of bank facility of approximately JPY26.0 billion, to fund the acquisition of
the Properties and related costs, all on the Listing Date

I guess the above two items will be fine, so I infer no major problems with the computed NAV.

Anonymous said...

[[ Anonymous 7 ]]

Re : RE : Cornerstones

According to reports, the demand for the placement tranche was overwhelming and many were cut back.


Although not strictly relevant to the retail portion of the IPO, some of these placement tranche people were smart.

According to REITSWEEK, there was little interest in SEPT/NOV last year for this proposed Business Trust.

That was a smart move.

Some of these placement tranche people are obviously playing with printed money (ie USD), and had they subscribed then, they would be taking a FX loss of about 20%(+) to-date.

Taking a 20% loss in USD (this printed money) terms would be amazing - no wonder everyone apparently ran off.

(Although it is possible also that rise in Unit price would have partially compensated.)

So, who says people are dumb?

Now that JPY appears to have stabilised, all those players with USD printed money are all back out again looking to subscribe.

Not that dumb. Blink, and you'd have missed it.

SC said...

looks like someone else came up with a different NAV of $1,52?

Anonymous said...

[[ Anonymous 7 ]]

Re : SC said...

looks like someone else came up with a different NAV of $1,52?


Looks like that "someone else" just made a basic schoolboy error.

Or is just making up numbers out of nowhere.

All units rank pari passu. Maybe that someone else does not understand what that means either.

Mr. IPO said...

Ok, pictures uploaded.

Anonymous7 - thanks for filling in all the gaps from the prospectus. I loaded physical yen for consumption, not paper.

Happy IPOing everyone.

Anonymous said...

[[ anonymous 7 ]]

yes, please take cash, if possible.

just like with gold, take physical.

must have safe place to store it. fire hazard will destroy everything.

There is increasing speculation that the crazy madman in America is going to print more money again, and more money then ever before.


To take up your point about Business Trust :

-->CRT is offered under the business trust structure; i have been cautious on business trust structures; no reason for Sponsors not to stick to what they have "promised" unless something detrimental happens.

I think Mr IPO, if you consider the matter carefully, you might actually welcome a structure that allows the managers to reduce dividend. Especially in this case.

Perhaps this is counter-intuitive. Think about the above carefully when you get back in to SIN.

Mr. IPO said...

While it may sound "counter-intuitive" in times of extreme credit crisis, it may actually be good to have the flexibility of conserving cash than be mandated to pay out everything. At the end of the day, it is the management that we are betting on. :)

James said...

Any idea if Croesus management is competent? Perhaps relative to the Maple/CapitaLand managers?

lzw said...

applied for 10 lots. here goes !

Mr. IPO said...

I think difficult to compare like that. But having said that, the mgmt should be competent or wouldn't have received the support from the sponsors.

Anonymous said...

Hi Mr IPO,
How many lots have you been alloted via your remisier ??

Mr. IPO said...

Ask for 200 lots get 4. Pathetic.

Anonymous said...

[[ anonymous 7 ]]

I was wondering since there seems to be some appetite for these REITS and REIT-like instruments, if the companies concerned and the banks could get together to offer placement shares across the electronic-banking network.

Placement shares instead of "rights issues".

Otherwise, it would be all the institutions, foreign or otherwise, would get the lion's share of future placements. (not IPO placements, but secondary post-listing placements)

Anonymous said...

How will I know how many lots I am allocated.
Sry.. i am a newbie here.

Mr. IPO said...

Chekd your bank account tonight or the ESA results from Internet banking.

Anonymous said...

Good analysis, Mr IPO!

Anonymous said...

Applied for 2, allocated 1....hmmm...good or bad...we'll know tomorrow.. :s

lzw said...

applied 10. allocated 2.

Anonymous said...

[[ anonymous 7 ]]

SGDJPY at 1430 EDT = 81.6

YEN depreciated just a bit more.

saying for the record.

Anonymous said...

[[ anonymous 7 ]]

hah! early news. CRT debuts around $1.125.

Price performance so far very close to MapleTree China's.

Anonymous said...

[[ anonymous 7 ]]

Hot off the press today. For the record, before the article disappears from the internet.

MapleTree is planning more IPOs in some years ahead, so by all means keep some current dividends (or distributions) to subscribe for these IPOs.

Anonymous said...

[[ anonymous 7 ]]

The article is here :

ublished May 20, 2013
Mapletree ramps up overseas business
It prepares for bigger presence in China, eyes Japan office Reit

By Felda Chay Mr Hiew: Mapletree's growth in China will be the fastest across all the markets, largely because of the economy's sheer size. - PHOTO: ARTHUR LEE

[SINGAPORE] Mapletree Investments, which recently announced a record net profit of $931.7 million for its latest financial year, is looking to ramp up its overseas business and potentially list a real estate investment trust (Reit) made up of office assets in Japan in two years.

Plans for the Japan Reit are still fluid as the office portfolio is small, but Mapletree's chief executive officer Hiew Yoon Khong shared in a recent interview with The Business Times that it is currently the most likely of Mapletree's property portfolios to go into a Reit.

The group, meanwhile, is gearing up for a bigger presence in China, where it has assets under management (AUM) of about $6.8 billion including its properties in Hong Kong - or about 31.5 per cent of its total AUM of $21.8 billion.

And with $4.5 billion in total cash and undrawn facilities as at March 31 and net gearing at almost zero, the group is eyeing new markets such as Australia.

Subscribers, log in here to read the full story. If you do not have an account, subscribe here.

Google Analytics