Investing in Japan's Shopping Centres - Croesus Retail Trust Retail Investor Seminar

Have you been to Japan or want to travel to Japan for a holiday? Do you know you can own a part of the many shopping centres in Japan? Yes, you can own shopping centres through a business trust called Croesus Retail Trust (CRT) which is listed on the Singapore exchange since May 2013.

I was at the retail investors day of Croesus Retail Trust (CRT) last Thursday and had the opportunity to listen to what the management team had to say with regards to the situation of the company and its plans for the future. It was quite a fruitful session as I learnt more about the Japanese retail real estate market and the company itself.


Portfolio of Croesus Retail Trust

I've been a shareholder of this trust since November 2013. Initially, CRT owns only 4 shopping centres in Japan, Now, they have 7 properties in their portfolio. 75% of their properties are in Tokyo and greater Tokyo. From last Thursday's session, I heard from the management team that the aim of CRT is in providing a resilient and robust income stream for its investors. It has suburban assets which are defensive in nature. Some of these shopping malls' main tenants are supermarkets and they are very family oriented. This results in the income stream being quite stable naturally.

A recent acquisition of One's Mall into CRT's portfolio

In recent months, CRT has been purchasing properties in Tokyo itself. The main reason for the purchases in Tokyo is to ride the asset appreciation wave in Japan. Property prices have been and are still going up in Japan as seen from the fall of the rental cap prices. The rental cap prices are what we know as rental yield in Singapore. As property prices goes up, the percentage of rental yield falls even as it remains constant in real value terms.


What are the returns like for investors?

CRT has been providing quite a good yield for investors since its IPO in 2013. It has consistently provided investors a yield of 8.4% and 8.7% for FY 2013 and FY 2014 respectively at a closing price of 95 cents. This is on the high side as compared to the other retail Reits in Singapore as well as Japan.

Other Japanese retail companies such as JRF has a yield of 3.6%, Activia 3.2%, Frontier 3.3% and Aeon 3.2%. As you can see, other Japanese retail companies on average only provides a yield of around 3%. One question we may ask is: "Why is there such a big gap between the yield of CRT and the others? Will the gap close?"

Growth of CRT and reassurance to investors

The answer given by CRT is yes the gap will close. They hope to grow the company by doing more acquisitions so CRT becomes an indexable stock which will hopefully drive the stock price up. When the stock price goes up and distribution per unit (DPU) or dividends maintains or grows modestly, the gap will close.

They have reassured investors that they will be responsible in delivering the DPU. They have promised on a 100% distribution for the first 2 years and at least 90% thereafter. They have also limited their gearing ratio to a maximum of 60% and swap all their floating rates to fixed rates to provide a more stable income stream. The gearing ratio is the amount of debt as compared to the equity of the company.

Gearing ratio too high?

The gearing ratio of CRT is around 50% now. Some of us may feel that it is too high. The management of CRT explained that the reason for the high gearing is because cost of borrowing in Japan is cheap now. Their borrowing cost is on average around 1.3% and are all on fixed rate. They reiterate that it is a good time to catch the property price appreciation wave in Japan now.

Also, as one of CRT's strategy is to ride the asset appreciation wave, an increase in the property price will result in a decrease of the gearing ratio.


What is going to drive the DPU?

If we're investing for income, then we have to ask ourselves how CRT is going to maintain and drive its DPU? CRT has given a DPU of 7.86 cents in FY 2014 and is projected to give a DPU of 8.5% in FY 2015. How are they going to drive DPU?

3 Acquisitions

Firstly, CRT has acquired 3 other shopping centres since 2013. This will provide more income stream for FY 2014 and 2015.

Tenant replacement and improvements to Mallage Shobu

Secondly, Mallage Shobu is one of the shopping centres in the portfolio of CRT. It contributes to 34% of the net property income (NPI) of CRT. The size of Mallage Shobu is approximately 2/3 of Vivo City in Singapore.

Mallage Shobu, the largest mall in CRT's portfolio

CRT has embarked on a significant movement in tenant composition with tenant renewal exercise for 155 out of 242 leases during FY2015 at Mallage Shobu. They have introduced 69 new brands, 28 refreshed store transfers, 58 renewed leases and also recent additions of new tenants such Muji, KOE (fashion apparel brand) and Jelly Beans (women’s shoe retailer); Toys R Us expected to commence in June 2015.

Improvements to Mallage Shobu will result in downtime in 2015. This will negatively affect DPU but the management has said that to minimize impact, they have spread the improvement works across different quarters. In 2016, we should see a 20-25% positive rental uplift which will result in a 4% rise in DPU.

Currency Hedge until June 2016

Since DPU is in Japanese Yen, it is subjected to fluctuations of the currency. The Japanese Yen has depreciated against the Sing dollar and this will affect DPU. But, CRT has hedged against it to stabilise the DPU.

However, once the currency hedge ends in June 2016, will DPU be affected? The management has said that they will hedge again when there's a good rate but their main strategy is still to focus on growing organically which is to acquire more assets to improve DPU.

In my opinion, there's still a lot of room to grow for CRT. The management seems to know what they are doing and gave a clear picture of their plans for the current and future growth of the company. During the seminar, someone asked if there would be a possible rights issue in which the management said they would consider it and it would be possible.

Also, they mentioned that 20% of the investors have chosen to reinvest their dividends which shows shareholders' trust in the company's future. If there are any rights issue or opportunity to invest more at lower prices, I would continue to invest in this company for a resilient and robust income stream which CRT provides.

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Related Posts:
1. Short interview with Jeremy Yong, Co-founder of Croesus Retail trust
2. Croesus retail trust and Saizen Reit - SG Young Investment
3. Looking to invest in Japan's real estate

How Delayed Gratification Can Determine Success or Failure?

The keys to success have finally been revealed by just one experiment done by psychologist Walter Mischel in the late 1960s to early 1970s. Walter Mischel was a professor at Stanford University. In the experiment, a child was offered a choice between one small reward provided immediately or two small rewards if they waited for a short period, approximately 15 minutes, during which the tester left the room and then returned. (The reward was sometimes a marshmallow, but often a cookie or a pretzel)

If you're still confused on how the experiment was done, watch this video and notice the reactions of the kids in the experiment:

See how the kids really struggle very hard to resist the temptation of eating that one marshmallow just to get another one if they wait patiently.

Some parts of the video were really funny looking at the kids faces of how they wait patiently.

The Results of the Experiment

In follow-up studies, the researchers found that children who were able to wait longer for the preferred rewards tended to have better life outcomes, as measured by SAT scores, educational attainment, body mass index (BMI) and other life measures. Those kids who were able to wait patiently were more likely to succeed in life. There is certainly a positive correlation between delayed gratification and success.

Delayed Gratification for Financial Success?

Now comes the point which I want to bring across. Having delayed gratification will result in financial success as well. Think about it, if we really can delay gratification and resist the temptation to spend money, we would have more savings. We would not unnecessary get into debt problems as well.

Also, having delayed gratification may mean we have the patience for investing and not the greed of wanting to get rich quick. We're less likely to burn our fingers in the stock market and less likely to fall into investment scams. It seems like there are so many benefits of delayed gratification.


Does it mean that people who are not able to delay gratification are set for failure? 

Looking at all the benefits of delayed gratification, we may wonder what if we are not able to delay it? Are we set for failure? While there are positive correlations between better life outcomes and delayed gratification, this does not mean those who cannot wait will be forever labelled as a failure. Delayed gratification can be taught and the process can be changed completely. How do we do it?

In a further experiment, the kids who were not able to wait for the second marshmallow were told to imagine that the marshmallow on the plate has a frame surrounding it. They were told that this is just a picture frame and it is not real. After this imagination process, researchers found that those kids were then able to wait patiently for the second marshmallow which they were not able to do so at first.

But you may ask, how do we apply it into our financial life? From the above example of imagining that the marshmallow is fake, we could similarly imagine that our money is fake or is not there. We must also remember that if we do not spend our money now, we will get more money later when we invest. One practical way I can think of is to transfer our money to a separate bank account and invest it prudently. We are doing a real life marshmallow test for ourselves now.

Try the real life marshmallow test on yourself and see what happens.

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Related Posts:
1. A generation of instant gratification - The cause of unhappiness
2. The search for a better quality of life
3. Getting Rich And Spending Money Without Looking At Price Tags

4 Simple Steps You Must Know To Invest Smartly

- Brought to you by www.stockflock.co 

As a beginner in investing, it can be hard to understand complex financial statements. But in fact, there are only a handful of key points you should take note of.

Here are 4 simple steps for you to have a good picture of a company’s health.

1. Valuation. Is the stock too expensive?

Just like when you do your shopping, you want to find the cheapest store to buy from. The same principle applies for investing. You wouldn’t want to buy a company that is too expensive.

Here is the chart of Amara, a hotel operator of the luxurious Amara Sanctuary Resort in Sentosa. First, we look at the Price-earnings of Amara. It runs at 8.91, the lowest among the 3 competitors. That makes Amara the cheapest company to invest in as compared to its competitors.

2. Earnings growth. Is the company growing?

We want to invest in companies that are growing. Amara’s growth has been stagnant for the past 5 years, hence it does not have an exciting growth story. However, that could pick up once Amara Signature Shanghai opens in China. 

3. Returns for investors. How much can you make as an investor?

There are two important things we look at. We want to know how much returns can the company generate for its shareholders, and of course, the more the merrier. For that, we look at Return on Equity, also known as ROE. 

Amara definitely generates the best returns for its investors as compared to its peers. Over 8% returns for the past 5 years? That is a good business to be in. If they keep this up, the share price should increase year after year. 

The second factor to look out for is dividend yield. Amara gives only 1.87% dividend yield. If you are looking for passive income, then this stock is probably not for you. In fact, all 4 hotel companies give low dividends so investors should be looking for capital gains from rising share price.  

Insolvency risk. Will the company go bankrupt?

No matter how fast the company is growing, you must always pay attention to the risk of a company not being able to pay its debt. History has proven that fast growing companies often borrow too much and when they fail, investors suffer. Therefore you should stay clear of companies that borrow excessively.

As seen from the pie chart above, Amara has almost 50% debt and 50% equity (slightly more equity). This is on the high side. A safer proportion will be 30% debt and 70% equity. Nonetheless, it is manageable for now but investors should be mindful if Amara’s debts keep rising. 

Access to all the information on Singapore listed companies are now available for you to help you invest better. Simply log on to www.stockflock.co for a full suite of resources you need. 

*This is a sponsored post brought to you by the Stockflock Team