Does Croesus Retail Trust’s Private Placement Make Sense?

REIT coins

Croesus Retail Trust (SGX: S6NU) is the first real estate investment trust listed in Singapore that has a focus on retail properties located in Japan. 

The REIT got listed in May 2013 and has delivered capital gains of 5.9% since at its current unit price of S$0.985. Just yesterday, the REIT had launched a private placement of 78.9 million new units at a price of S$0.915 each. Does the private placement make sense for Croesus Retail Trust’s existing unit-holders?

Purpose for raising capital

Croesus Retail Trust is raising new capital through the private placement to partially fund its acquisition of a new mall in Japan. The REIT intends to buy the 14-year old One’s Mall in Chiba, Japan for a sum of JPY11 billion (around S$132.5 million). The mall, which has a net lettable area of 52,844 square metres, has a high occupancy rate of 99.4% with a highly diversified tenant mix.

According to Croesus Retail Trust, 50% of One’s Mall’s net lettable area consists of supermarkets, followed by miscellaneous shops at 19%, services at 15%, fashion at 14%, and food at 2%.

The details

The private placement will see Croesus Retail Trust’s total unit count increase by 18.6%. The issue price of S$0.915 per unit is at a 7.1% discount to the REIT’s current price of S$0.985.

The acquisition of One’s Mall is expected to have a slight positive impact on the REIT’s net asset value per unit (NAV) and distribution per unit (DPU) as the increase in unit count has more or less diluted a significant amount of the mall’s benefits to the trust.

Based on Croseus Retail Trust’s number crunching, its pro-forma DPU for the fiscal year ended 30 June 2014 would have inched up from 8.98 Singapore cents to 9.00 Singapore cents. Meanwhile, its pro-forma NAV would have moved up slightly from 75.08 Singapore cents to 75.16 Singapore cents.

With the purchase of One’s Mall, the total properties in Croesus Retail Trust’s portfolio will increase to seven.

Foolish Take

All told, it seems that the private placement will not have a huge impact on the REIT in the short term. At its current price of S$0.985 per unit, Croesus currently offers a yield of 9.1%, one of the highest among all the REITs listed in Singapore.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.