Croesus Retail Trust

[Nick]

http://masnet.mas.gov.sg/opera/sdrprosp....8000A36ED/$File/CRT%20Preliminary%20Prospectus.pdf [Prospectus]

The guided dividend yield of this business trust is 8%.

(Not Vested)

[felixleong]

please correct me if any info below is wrong, thanks


Price is pretty standard at 93 cents

Yield at 8%, which is the attractive point

Gearing about 48%, a level that I'm not comfortable with... I prefer 40% or less to be safe

3rd-8th may, application date

trade date is 10th may 2pm


I feel that there's still a strong demand for high yield products, therefore this IPO should be pretty well received. If allocated any shares, a profit taking level of $1.00 or better would be decent for a 7% short-term profit.

However I do not feel its a good counter to hold for too long.
With gearing at such high levels, there would be a high probability of a rights issue within 1 to 2 years to fund any future acquisitions.

[Contrarian]

1. Yen Is Dropping

2. The shopping mall, how much loan can Japanese bank lend? For saizen, it was 40-50% financing max

3. How well is their shopping mall run? Do you know?

[swakoo]

Gearing about 48%, a level that I'm not comfortable with... I prefer 40% or less to be safe

48% is based on appraised value of properties but because properties are sold at slightly less than appraised into this business trust, the gearing should be about 51%. Recall they aborted this last year, they probably revived this thanks to Kuroda san. Wonder what happens though when the QE is phased out over time.

[tanjm]

All of their leases are long term. That's a positive.

AEON is a well established suburban retailer. They are practically everywhere throughout Japan.

Yes Yen is dropping, but as for Saizen REIT, a dual edged sword. The Japanese Gov's QE program may result in asset inflation.

A higher debt ratio may be acceptable with longer leases and longer debt maturity profile. The first is a yes. The second not so much at 5 years.

[lanoitar]

Yes Yen is dropping, but as for Saizen REIT, a dual edged sword. The Japanese Gov's QE program may result in asset inflation.

I've been struggling with this for a while. How do u judge which edge is sharper?

To me, Yen depreciation resulting in DPU drop is a definite thing in the near term. Asset inflation, OTOH, is a maybe. In fact, the Japs weren't even sure if they can achieve their 2% inflation target.

So, we have a sure event vs a maybe event. I put my money on the sure one.

[yeokiwi]

Only LUZ SHINSAIBASHI is at good location.
The rest of the three JP properties' locations are so-so.
I suppose it should be alright in the short term but the long term aging population will cause the the younger population to congregate at big cities in tokyo, osaka, nagoya.

[pianist]

Is this Already launched?

[KopiKat]

Only LUZ SHINSAIBASHI is at good location.
The rest of the three JP properties' locations are so-so.
I suppose it should be alright in the short term but the long term aging population will cause the the younger population to congregate at big cities in tokyo, osaka, nagoya.

Yes, except for The Osaka one, the rest are in smaller cities / prefectures. Luz Shinsaibashi contributes only 14.4% to NPI for FY14 (Forecast) and there're only 4 tenants, with the bulk to H&M (58.4% of NLA).

Tenant Profile

H&M Hennes & Mauritz AB, a Swedish fast-fashion retailer, is the key tenant of Luz Shinsaibashi, occupying the first to fourth levels. The company focuses on chic clothing for men, women and children at a low price. H&M initially entered the Japanese market in September 2008 with its first store opening in Tokyo’s Ginza district, the premier retail destination of the nation’s capital. The retailer has increased its store openings ever since and currently has 15 outlets throughout Japan. Luz Shinsaibashi opened in March 2010 as H&M’s Osaka flagship store and was followed by the opening of a second store opposite the property in November 2011. While the second store focuses on men’s and women’s casual wear and accessories, the flagship store is catered towards the more sophisticated women’s wear ranging from the more classic to the trendier lines.

The remaining upper levels of Luz Shinsaibashi are occupied by two restaurants, a Chinese restaurant and a Japanese ‘shabu shabu’ restaurant, on the fifth and sixth levels respectively. The seventh level houses a karaoke lounge, Karaoke 804. Overall, Luz Shinsaibashi is considered to benefit from a strong tenant mix well suited for the location, providing popular shopping, dining and entertainment options for visitors of the area. In addition, the majority of the turnover generated by the property is underpinned by a high profile tenant (H&M) secured under a long-term lease until 2024.


I'm rather familiar with the Shinsaibashi area and the crowd along that street is really incredible. But, I have always wondered why the shops are not as crowded (unless they have sales). The popular restaurants are also very crowded but not all. In fact, you can get very good value-for-money meals if you shop aro' eg. IIRC, all-you-can-eat BBQ @ ~Y1500 with <Y800 for all-you-can-drink beer (Y500 if non-alcoholic drinks).

But, I suppose with the kind of street crowd, they ought to have no problems renting it out should any of their tenants ceased their rental agreement.

For this IPO, the 'cheese' (Yield = 8%) looks great, but the Trap (Gearing) looks scary...Still thinking while I go thro' the prospectus...

[yeokiwi]

For this IPO, the 'cheese' (Yield = 8%) looks great, but the Trap (Gearing) looks scary...Still thinking while I go thro' the prospectus...

In the short term, the rental income will come in as expected and the interest will be paid.

I suppose 8% is the psychological benchmark for retail investors to be hooked. Most retail investors do not really care about gearing, lousy properties, aging population, declining yen or whatever reason. As for institutional investors, there are enough liquidity to bet on anything that can give a return higher than bonds.
With this mindset, I suppose this business trust is good for a stag.


The Croesus TMK will be subject to the following covenants under the terms and conditions of the
Croesus TMK Debt Facility:
• A covenant to maintain a minimum stressed debt service coverage ratio of 1.3, calculated
based on the net property income divided by 6.6% of the outstanding principal of the debt
amount;
• A covenant not to exceed the maximum loan-to-value ratio of 60% based on a third-party
appraisal valuation; and
• A covenant to maintain customary reserves such as the security deposit, operating expenses
(such as tax, insurance and trustee fee), capital expenditure and six-month interest
payments under the Croesus TMK Debt Facility.


The net property income is around S$40 million for 2014.
To break the first covenant, the NPI will have to drop below S$28 million.

To break the 2nd covenant, the total value of the properties will have to drop below S$552 million.(current valuation is S$669.4 million)

Also bear in mind that CRT is at a high gearing and any further acquisition will require a right issue. That, I think is the greatest risk of holding on to CRT for a even a mid term period.