Croesus Retail Trust IPO

Following up to the Mapletree Greater China Trust, now we have another retail trust coming to IPO. It is the Croesus Retail Trust which focuses on Japanese retail properties. This comes at the right time as the Japanese PM is pushing aggressive expansionary fiscal and monetary policies to boost the economy. Increasing spending generally bodes well for the retail sector.

The offering price is $0.93 per unit, giving it a market capitalization of about $375 mil to $414mil. The NAV of CRT is approximately $0.90 per unit, so the listing is pretty much at NAV. The interesting thing about CRT is that it positions itself as an Asia Pacific retail trust with an initial portfolio in Japan.


Business Trust vs REIT

While it is a business trust and not a REIT. The trust deed does contain certain restrictions similar to a REIT. There is a leverage limit of 60% for CRT, while for SREITs it is 35% limit non rated and 60% rated. The distribution policy is 100% of distributable income for 2014 and 2015 and then at least 90% going forward. That is again similar to a REIT, but as a business trust, it does have the ability to change it policies.

There is also development limit where the development component cannot exceed 20% of the trust value. This is good as it limits the risk of the trust from greenfield developments.


img crt luz shinsaibashi


Luz Shinsaibashi


CRT Property Table Summary

img crt property table

One of the interesting note is that all the properties are freehold properties unlike SREITs where most of the retail properties are leasehold properties. It eliminates any risk of decreasing value and spending due to renewal of land leases. The WALE is very long at 11.3 years, which generally translates to very stable rental income, but lower upside for rental. Not only are the purchase consideration below valuation for all the properties, the blended capitalization rate is relatively attractive at 6.2% compared to 5% or lower for many of the retail properties in Singapore and Malaysia. In fact, for MGCT, Festival Walk was purchase at 4.1% cap rate.


Capitalization Table

img crt cap table


Based on the cap table, the leverage ratio is around 43.7%, which is very similar to MGCT leverage level. It seems like MGCT has hit a sweet spot with investors and CRT is trying to follow the same formula for a successful listing. For stable rental levels and decent cap rates, it is less risky for the properties to devalue, so a higher leverage level can be acceptable.


Income Statement

img crt income statement


Revenue increases by 0.7% in 2015, which is indicative of a slow rate of rental increase. That is probably due to the long WALE and substantial portion of the leases being fixed rental. It is good in the sense that the revenue is stable, but it does not exhibit the kind of growth that retail SREITs show. The higher current yield and cap rates will have to make up for the lower growth.


Distribution Yield

img crt distribution yield


The distribution yield is expected to be 8.0%, which is very attractive compared to all the retail SREITs currently. At the same leverage levels as MGCT, the yield is at least 200 basis points higher making CRT look even more attractive.


Japanese Sales Trend

crt sc sales vs retail sales

Looking through the industry report, it is no surprise that the sales attributed to shopping centers are rising steadily even though overall sales remain stagnant. The potential growth to retail properties will come not only from a stimulated economy by expansionary fiscal and monetary policies but also the shifting trend towards buying in shopping centers.


Key Risks

img jpy forex chart

One of the key risks is that JPY may depreciate against the SGD. Up until last year Dec, JPY was seen as a safe haven currency which kept the currency stable against the SGD. However, after the LPD party won last year Dec, they weakened the JPY with the intention to boost exports and stimulate the economy. This is a double edged sword for us as foreign investors as we will be concerned with a depreciating yen, but at the same time a healthier economy does help to improve consumer confidence. The right balance is the key to making it work.


My Take On This

As always, I am generally bullish about anything to do with consumers, especially retail properties. The CRT is a good opportunity to get exposure to the Japanese economy without having to buy any Japanese stocks. The yield of 8.0% is extremely attractive against SREITs, MREITs, JREITs as well. While the yen could depreciate against the sgd, but it is the same for any foreign investments. The key is always to have investments which can generate positive returns after the currency conversion. Like MGCT, I am definitely subscribing.


For further reading, you may be interested in:

Mapletree Greater China Commercial Trust IPO

Dynasty REIT IPO

CapitaRetail China Trust – An Overlooked High Performance Retail REIT

Far East Hospitality Trust IPO

Ascendas Hospitality Trust IPO

M&L Hospitality Trust IPO

Understanding Singapore REITs Part One – REIT Categories

Understanding Singapore REITs Part One – REIT Categories (Continued)

IGB REIT IPO Owner of KL MidValley and Gardens

36 Comments on Croesus Retail Trust IPO

  1. Hi Calvin,

    Are you going to share your latest portfolio and purchases for April as mention eariler


  2. Hi Calvin,
    Thanks for sharing with us your learned views of this IPO.
    One of my main concern for this ipo is the FX risks. At the rate the yen is depreciating, it is likely the forecasted yield of 8% will be affected. In the worse case scenario, how much would the yield be?

    • Hi Mich, we don’t really know how far Yen may drop. But the prospectus did put in a downside case of 10%, where FY 2014 yield drops to 7.2% while FY 2015 drops to 7.3%. Of course, not only does the yield drop, but the NAV may drop in SGD as well. The good thing is that the loans are denominated in yen, so the risk of the loans > property value is not as high.

      Remember I am using it as a diversifier rather than as my core portfolio. It’s same problem if I buy Malaysian stocks, Hong Kong Stocks, US Stocks, UK stocks etc. as all of them have fx risks. But they help to diversify so that your entire portfolio doesn’t fall at the same time if say Singapore economy takes a big hit for whatever reason.

      • Hi Calvin,
        I get it. You write well and your articles are nice to read. I am your fan.

      • Hi Calvin,
        A question about their ROFR, I noticed most of their ROFR with their sponsors in China and Japan are all expiring rather quickly in 2013, some within a matter of a few months. I don’t see the purpose of having such a short ROFR, as most reits have ROFR which stretch for up to 3 years, unless they are expecting them to make an acquisition immediately after IPO, but their leverage is already very high?

        • Hi MICH, I don’t think it’s a big deal that the ROFR is short. They probably don’t have ready buyers anyway. It also makes sense to sell to the REIT as they will be able to get a good price since they are the sponsor and the REIT is a ready buyer.

  3. Hi Calvin,
    Thank you for sharing your analysis and opinions. Is it indicated anywhere how often will distributions be made – annually, bi-anually or quarterly?

  4. capricon // May 7, 2013 at 5:32 PM // Reply

    hi calvin
    i have few friends living in Japan and they mention that nowadays they seldom buy at malls, they would just go check out the physical items and buy online which can be cheaper. I am expecting such trend to continue and skeptical about investing in retail malls, same applies for singapore, the increasing rentals is one factor pushing up the inflation and cost of living.

    • Hi capricorn, yes online shopping is a rising trend, but I don’t see retail spending going down. In fact, most evidence points to increasing spending at retail malls. There is also a big lifestyle trend attached to shopping malls, for eating out, hanging out etc. It is also a reason that F&B is currently the strongest segment for most shopping centers.

  5. Hi Calvin

    What are your thoughts on Rickmers Maritime rights issue?

  6. Hi Mr Calvin,i greatlly appreciated your replied. Please educate me what to look for sound fundamental and undervalue of a company? Regards.

  7. Croesus price has dropped, would you be picking up some more lots?

  8. Hi Calvin,

    Croesus keeps plunging and I am wondering if I should reduce my holdings (average about 1.05) or keep. What’s your take and long term view of this?


  9. Hi Calvin

    Any idea when Croesus is announcing their results as well as dividends?


  10. Hi Calvin,

    This stk plunged to 88c. But I don’t seem to spot any bad news. Should I keep or long? Obviously selling will incur a huge loss for me :(

    • Hi Vic, there are a few possible reasons for the drop and they are all tied to the macro environment.

      1. Fears of rising interest rates and increase in long term bond yields.
      2. Japan’s Abenomics losing steam and unable to recover economically
      3. Japan’s long term economic fundamentals are questionable

      This volatility is all related to macro and you should be expecting them before you invest. Croesus should just be a small diversification for your portfolio and you shouldn’t be too worried about the volatility.

  11. Hi Calvin, Croesus has gone below 90 cents. Any idea why this is the case? Do you advise to hold or cut losses?

  12. Hi,

    Croesus price has dropped below 90 cents recently. Do you think it is a good time to average down ?

    • Hi SY, I can’t say for you as I do not know your purchase price and portfolio. However, I am not ready to average down on it yet based on my own portfolio. I also want to wait for the actual results to see if they are in line with prospectus.

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