Sunday, May 5, 2013

Wrong Gears for the Wrong Crowd? - Croesus Retail Trust

Previous post: [Upcoming IPOs - Croesus Retail Trust & Asian Pay Television Trust]

So, all the hype of the Croesus Retail Trust IPO has started on the online sphere with several blogs catching up on this big IPO that will be the 2nd largest after Mapletree Greater China Commercial Trust in March this year. For a start, the timeline for this IPO seems quite tight and listing day is on 10 May.
If you are a new IPO investor, do check out my blog page on Guide to IPO Investing.
Even if you are a seasoned IPO investor, you may wish to check out 2012 and 2013 IPO listing performance at SG IPO Statistics.


Anyway, so here is a comprehensive summary that I hope to have compiled from reading all the various online literature (that you will already have come to realise hinge on the same old points) and some additional points from my analysis of this IPO.

  1. High yield of 8-8.1%
    1. [The good] is very good given the risk adverse outlook still persisting in the course of the year plus yield hunting has already driven many REITs and business trusts to yield compressions (~5-6% annual yield down from 10% in height of 2008). Mapletree Greater China Commercial REIT that listed in March this year has already appreciated by 20% from its listing price and 8% from its first day close. More statistics here.
    2. [The good] that Japan had unleashed a torrent of cash from its stimulus that should flow down to the individual retail customers and promote retail shopping in the coming years.
    3. [The bad] that seems slightly distasteful (as with the Singaporean mentality, we favour questioning items that seem too good to be true; being critical is a trait though)
      • that this yield does not seem sustainable given the outlook for yen and that the trust has to pay out in SGD. That means that there could be a possibility of digging into cash stockpile to pay their promised dividends on top of the distributable income.
  2. Gearing ratio of 47.5%
    1. [The bad] Well, nobody likes a trust with a high debt to assets ratio. Period. 
    2. [The good] Funny thing is, Mapletree Greater China Commercal REIT has a debt/asset ratio of 43%. Same with Keppel REIT.
  3. High cornerstone and institutional take-up out of the total 390 million units.
    1. [The good] There will be adequate price level support for the listing period
      1. Only 5% of total underwrited units (21.5 million units) offered in the Public Offer. 
      2. 38.5% of total units (163 million) are held by cornerstone investors
  4. Business trust concept
    1. [The good] Business trusts on the SGX tend to operate with a slightly higher forward-looking yield so it can be said that there is still further upside to their prices in this chase for yields. 
    2. [The bad] Truth is, business trusts listed in Singapore tend to be less favoured by investors as compared to REITs basically of their operating structure. In short, business trusts are more complicated in their value proposition. REITs also pay less taxes on their income in Singapore.
    3. [The good] Croesus yield of ~8% puts it as the 2nd highest forward-looking yield business trust on the SGX, where the next closest is K-Green trust and Hutchinson Port Holdings. It is only surpassed by Religare Health Trust of 8.4%.
  5. Pure Japan retail property play that is also the only one listed on the SGX
    1. [The good] Ideal for retail investors seeking exposure to Japan and its recent stimulus package.
    2. [The bad] Saizen REIT, a Japan focused REIT, debuted in 2007 at S$1.00 and it has since depreciated until S$0.20 on Friday's close. Perhaps, some of its decline was due to the deflationary pressures in Japan since 2007 while some of which may just simply be due to lack of investors interest in Singapore.
Well, so my conclusion? Basically, I see this IPO trust as a good investment for the aggressive investor seeking to make a good bet on Japan while taking on the risks pertaining to business trusts in general. This is a good opportunity for an such minded investor to also play on yield compression in time to come as a result of yield hunting. It could also be a good stock for a quick buck on listing.
However, I would gravely advise against keeping the stock for longer periods of time - the signs of an uptick in interest rates is getting ever closer from the US. Once stimulus ends and interest rates tick up, there goes the yield hunting story and we may see a collapse in the inflated REITs/Trusts regime.
For the conservative investor, I would suggest that your money is better placed elsewhere in this already-inflated sector. Croesus Retail Trust is another business trust seeking to ride this bandwagon a little too late.

All quoted figures in Point 2 and 4 are derived from the OCBC Investment Research S-REITs Tracker Compilation dated 13 April 2013. As it is an uncirculated copy, I did not upload it; I am sure you can get it from your broker or more updated data from Bloomberg terminals.



Anonymous said...

This is NOT a reit!!!!

healthytrader said...

My apologies!! Replaced the wrong term. Thanks for pointing out!

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