As from Business Times:
“CROESUS Retail Trust (CRT) is acquiring a prominent suburban mall in Japan's Hiroshima prefecture for 3.3 billion yen (S$40.5 million). Fuji Grand Natalie, located in a well-populated zone in Hatsukaichi City, has about 53 sub-tenants involved in fashion, goods, services, food and other sectors. It has a weighted average lease expiry of 8.2 years, and Fuji as an anchor tenant. Hatsukaichi City is about 30 minutes from Hiroshima City by car, and also home to a World Unesco Heritage site, the Itsukushima Shrine. The 3.3 billion yen consideration represents a 6.3 per cent discount to the property's valuation of 3.52 billion yen, said CRT's manager, Croesus Retail Asset Management”
For more about the acquisition, you can refer to the presentation slide in CRT website.
A) 5 Apr 16 – issued S$60,000,000 5.0% FIXED RATE NOTES DUE 2020.
B) 23-24 Mar 16 - issued 70 mil New Units at S$0.750 to raise gross proceeds of up to S$53.9 million.
C) 2 Nov 15 – right issues to raise S$69.7 million of which most of the proceeds raised were used to acquired Torius Property based in Fukuoka for a purchase consideration of S$95.2 mil.
With this current acquisition, CRT has a portfolio all across Japan. The last one was Fukuoka last November, which was strategically located as well as far as the portfolio property location is concern. Not just that, CRT has a strong diversification with no single property exceeding 26% of total NPI.
The location of Fuji Grand Natalie is strategically locating near to train station and major access roads, serving as a suburban mall for neighboring residents who were having income above national average. Moreover the area is seen historically with stable growth of population as compared to national and prefectural average.
I also like the fact that the land is freehold and constructed in 1999, with long WALE of >8 years and diversified tenants mix master lease to Fuji Co until Mar 2024.
The deal also represented 6.3% discount to valuation.
Figures wise, yield is “projected” to be accretive, because the property has NPI yield of 6.3% above the estimated cost of capital est c4%.
The purchase is financed by a mixture of equity and debt financing.
1) ¥2,273.1m (=S$28.2m) via Japanese bank loan and bonds at dirt cheap cost of debt of 0.6%
2) Proceeds of a placement exercise completed recently ¥1,463.7m (S$80.1m)
3) Consumption Tax ¥150m
Post acquisition and after utilizing the proceeds from the recent placement and issuance of MTN (total ~ 113m), CRT still have an estimated remainder cash of ~S$33m for further acquisition.
AUM will rise 3.7% to ¥99.8bn and DPU is “expected” to increase from 7.66 Sct to 7.80 Sct.
CRT is trading at a current price of S$0.825. At this current price, it has a 9.45% yield and a price to book ratio of 0.874
I had personally not visited the mall and not sure how great it actually is, in comparison to what CRT has said. Despite that, based on what was published, I think it is a great deal with many positives. I especially like the fact that it is suburban, and its efficient use of financing, the freehold and long WALE leasing and how the deal is project to be yield accretive.
That said, could CRT be over aggressive in its recent acquisitions mounting its own debts in volatile global environment like this. The last two acquisitions take place within a space of less than 6 months, and potentially a next one upcoming maybe?
Or perhaps, they are also confident that the Japanese government will eventually be able to stimulate consumption with more measures ahead, having been not so successful with Abenomics over the past years.
What do you think about this deal?
Disclaimer : I own shares of CRT at time of writing.