The plunging yen has prompted the manager of Croesus Retail Trust (CRT) to hedge almost all of its distributable income to ensure investors still get steady returns.
The trust, which owns seven malls in Japan, receives all its revenue in yen, which it then converts into Singapore dollars for distribution to unitholders. CRT typically maintains a hedge of at least 80 per cent of projected distributable income, according to previous earnings reports, but risks from currency fluctuations have intensified in recent weeks.
"We have responded promptly to protect CRT and our investors from the unprecedented weakening of the yen, which has declined about 9.3 per cent in the past four months against the Singapore dollar," said Mr Jim Chang, chief executive and executive director of Croesus Retail Asset Management, the trust's manager.
One Singdollar could buy 90.3 yen yesterday, up from about 82.4 yen four months ago.
CRT is using what are called forward foreign currency exchange contracts to hedge its distributable income for the period up to Dec 31 next year.
Mr Jeremy Yong, co-founder and group managing director of CRT's sponsor, Croesus Merchants International, said yesterday: "When we can expand hedging, that shows you how visible our income stream is, and tells you that our income stream is not volatile. CRT's interest-bearing liabilities and income-yielding assets are all denominated in yen, so there is no currency mismatch."
The trust also expects rent rises to boost income from next July. It is now doing its first rent renewal exercise with 150 tenants at Mallage Shobu, a suburban mall two-thirds the size of Singapore's VivoCity. These tenants contribute 17 per cent of CRT's rental income, said Mr Yong, who is also a non-executive director of the trustee-manager.
CRT plans to revise average lease periods down to no more than five years, which will give CRT the chance to adjust rents upwards more regularly.
Leases now average nine years, down from 11 at the time of CRT's debut on the Singapore Exchange in May last year. While unimaginable here, such lengthy leases are the legacy of years of deflation, where landlords preferred contracts of no less than six years - sometimes as long as 15 years - to protect themselves against falling rent.
But rents in Japan are now rising, and Mr Yong believes they will continue to rise on the back of increasing wages and "euphoria" leading up to the 2020 Olympics in Tokyo.
CRT's policy is to distribute 100 per cent of its distributable income until next June and at least 90 per cent of its distributable income thereafter, in semi-annual payouts. CRT units closed 0.5 cent higher at 89 cents yesterday.
This article was first published on Dec 19, 2014.
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