Friday, 28 February 2014

Analysis of Croesus Retail Trust

I just picked up from mail box this week's The Edge Singapore, which features a report on Croesus Retail Trust. The main message is that CRT bought two malls in Tokyo at a slight discount to valuation, which is funded by debt from Japan banks and bond sales, at cost of debt of 2.6%. The purchase will be yield accretive.

This counter started trading in May 2013, an awkward time when Fed started to talk about tapering and all dividend stocks suffered. 
CRT is no exception. After two rounds of plunging, the price has been trading within a very narrow range since Oct 2013 until recently it announced its better than forecast distribution. From the chart, 0.93-4 remains a strong resistance (incidentally is also the IPO price ). 

A closer look at the chart excluding distortion by the high volume during the IPO time. The MA struggles to push up and the BB is opening mouth, after long time of narrow range. Technically good indicators. (Ignore the latest price drop due to Ex-D. I could not fix the chart by adjusting the dividend) 

On the Macro front: 
1. Property price in Japan has been seeing upward trend since Abe kicked off its ambitious Abeconomics. The Tokyo property price has always been more robust than the peripheral areas', not to mention the 2020 Summer Olympics in Tokyo.

2. Japan is set to increase sales tax in new FY starting in Apr, which may weigh on domestic consumption, but the actual effects are to be seen. CPI is up ( which is a good news to Japan as she has suffered long term deflation). But much of the price increment is due to higher cost of imported goods esp. oil and gas due to weakening Yen. 

On the Currency front: 
JPY has weakened substantially since Sep 2012. Use USD/JPY as proxy. Look at the monthly chart, The upward trend is taking a break but still intact.

Personally I think Yen still has some more room to depreciate against USD(and SGD). The path will be clearer in May after new sales tax's effects kicks in. Should it hurts the GDP growth, one can only imagine there will be more quantitative easing measures from Japan's central bank.

Fluctuation in exchange rate affects the earnings/distributions in SGD terms. Investors who expect return in SGD are certainly concerned, as is the management team, who has reassured investors that 80% of the FY14 and 15 distributable income are hedged in recent results release. On the other hand, CRT's debt are totally fixed-rate and can still enjoy the lower borrowing rate in JPY terms. The rate in Japan is expected to be kept low for a long time, even after Fed probably starts to increase interest rate in 2015. 

On other fronts:
1. Tail risk exists such as natural disaster, or even military conflict with China. But these risks are with small probability and will not be stock-specific. 

2. CRT is structured as a business trust. Unlike reits, it is not obligated to pay out 90% of its income, and also not subject to borrowing limits, although CRT management has made self-declared policy of distributing 90% of its income and 60% of debt limit. We do wish to believe the management but bear in mind that self-discipline should not be overrated.

I loaded a few lots of CRT last quarter and look forward to the dividend payout in Mar. I intend to load more at opportune time and attractive price.

By the way, Veteran bloggers ASSI wrote insightful posts about CRT. Please do not miss.

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