Croesus Retail Trust (CRT) is the first Asia-Pacific retail business trust with an initial portfolio located in Japan. CRT's principal investment strategy is to invest in a diversified portfolio of predominantly retail real estate assets located in Japan and across the Asia-Pacific region and real estate-related assets relating to the foregoing. The initial portfolio is located in Japan in order to create a core portfolio of stable income generating assets. This serves as a foundation for CRT to pursue development and acquisition opportunities in the Asia-Pacific region to generate long-term capital value and long-term returns. CRT is supported by its strategic partners, Daiwa House and Marubeni, one of Japan's leading housing company and one of Japan's largest general trading companies, respectively. Daiwa House and Marubeni have both contributed assets to CRT, invested indirectly in the Trustee-Manager and granted CRT rights of first refusal over future acquisitions of their predominantly retail real estate assets in Asia-Pacific ex-Japan. CRT's initial property portfolio consists of four completed retail properties located across Japan.
CRT was listed on SGX on 10 May 2013 at an IPO price of 88.6 cents. It made a 22 for 100 right offer at 61.0 cents in September 2015 (ex-right on 2 October 2015).
Note that CRT will make distributions to unitholders on a semi-annual basis with the amount calculated as at 30 June and 31 December each year for the six-month period ending on each of the said date. It will distribute at least 90% of its Distributable Income to unit holders.
CRT announced its 2Q 2016 result on 11 February 2016. Gross revenue (GR) increased by 24.7% for 2Q 2016 as compared to 2Q 2015, and increased by 21.2% for 1H 2016 as compared to 1H 2015. Net property income (NPI) increased by 14.1% for 2Q 2016 as compared to 2Q 2015, and increased by 12.4% for 1H 2016 as compared to 1H 2015. Nonetheless, profit after tax decreased by 14.9% for 2Q 2016 as compared to 2Q 2015, and increased by 51.4% for 1H 2016 as compared to 1H 2015 due to lower fair value gains on investment properties and derivative financial instruments.
Income available for distribution increased by 11.3% for 2Q 2016 as compared to 2Q 2015, and increased by 13.6% for 1H 2016 as compared to 1H 2015. Group earning per unit (EPU) is 1.34 JPY for 1Q 2016 and 1.41 JPY for 1H 2016. DPU for 1Q 2016 is 1.79 cents for 1H 2016 is 3.5 cents. The extrapolated DPU for FY 2016 is 70 cents. At the last closing price of 80.0 cents, the yield is 8.75%.
The Management guided that, “The Bank of Japan had, on 29 January 2016 introduced a negative interest rate on deposit with the central bank to encourage fund flowing through the economy. The policy caused the three-month JPY TIBOR to drop below 0.15%. This provides CRT opportunity to finance or refinance its borrowing at lower interest rate. Not to mention, MTN of CRT will be due in next 12 months. The decrease in interest rate is also expected to lead to further rise in real estate prices in Japan. The aggregate value of CRT’s seven properties as at 30 June 2015 increased 7.9% as compared to prior valuation.
… With a view of enhancing portfolio yield, the Trustee-Manager is concurrently exploring asset enhancement opportunities for the properties. It will be undertaking asset enhancement initiatives for One’s Mall and Torius, two of CRT latest acquisitions, to enhance their attractiveness to both consumers and tenants.
CRT receives its distributable income in Japanese Yen but pays out distributions in Singapore Dollars to its unitholders semi-annually. To minimize the exposure to fluctuations in exchange rates, CRT has hedged close to 100% of the distributions up to June 2017.
Barring any unforeseen circumstances, CRT’s properties are expected to continue generating robust and stable cash flows in the next reporting period and in the next 12 months.”
The key financial ratios for CRT are as follow:
Share price – 80.0 cents
DPU – 7.00 cents (extrapolated)
Yield – 8.79%
PER – 9.62
P/B – 1.05
Gearing – 55.9%
Note that its gearing is very high, which is a red flag. As a business trust, there is no limit on gearing ratio imposed by SGX .
My average purchase price for CRT is 79.7 cents. I will continue to hold for the high dividend.
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