Lessons learnt from Croesus Retail Trust

SINGAPORE (July 3): There was little to suggest that Croesus Retail Trust would leave any significant mark on the local real estate investment trust sector when it listed in 2013. For starters, it is not even a REIT. It is a business trust that simply chose to behave like a REIT – notably by paying out all of its distributable income. CRT was also not backed by a major property development group with a pipeline of assets for it to acquire and grow. Also, all its properties were in Japan, making them unfamiliar to many investors in Singapore.

Reflecting these negative factors, CRT was trading at stubbornly high yields within months of its listing. Yet, it managed to develop a decent following among investors, including some institutional investors, by sticking to what it had set out to do. Over the last three years, CRT managed to steadily grow its revenue, net property income and distributable income. Its unitholders earned a good return despite its unit price remaining painfully depressed.

REITs are designed to deliver the bulk of their total return through their distributions. While some REITs trade at higher yields than others, what really matters is how much cash their underlying assets deliver. In short, the quality of a REIT’s assets and management count for more than anything else.

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