Asian market turmoil forces Croesus Retail Trust to rethink deal terms

Croesus Retail Trust owned One's Mall, located in Chiba, Japan.
Croesus Retail Trust owned One's Mall, located in Chiba, Japan. PHOTO: CROESUS RETAIL TRUST

SINGAPORE (BLOOMBERG) - Croesus Retail Trust, which holds shopping malls in Japan, said the turmoil that has roiled global markets has forced the mall operator to rethink its acquisition strategy and deal terms to account for increased risk.

"The events of the last two weeks have been a wake-up call that risk is creeping back into the market," Jeremy Yong, co- founder of the Croesus Group, said in an interview. "We will have to price in uncertainty in the market so we are trying to be sharper by adding in a component of risk to price these assets now."

nvestors including money managers and property developers are seeking to reduce risk after more than US$5 trillion was erased from the value of global shares in August. The market plunged on concerns that China's economy may be in worse shape than previously estimated and global growth may not withstand higher US interest rates.

Real estate investment trusts in Asia have also declined in the past month amid concerns that property prices may have peaked in some of the most expensive markets. Croesus Retail units slid 3.3 per cent in August, as the FTSE Straits Times RE Invest Trust Index declined 7.7 per cent.

Despite being more cautious about the terms of the deals they strike in this market, Croesus won't stop seeking targets, according to Mr Yong. The retail trust, listed in Singapore, is looking for acquisitions outside of Tokyo in search of higher returns, in cities such as Osaka, Fukuoka and Nagoya, which have good demographics of population and tourism, Yong said.

"We won't stop looking for acquisition targets," Mr Yong said. "If markets turn down, we will have to go back to the drawing board but we will still continue to pursue our business plan as we can't assume the world is coming to an end."

Croesus is backed by Japanese builder Daiwa House Industry Co. and trading house Marubeni Corp., which has seven retail properties in Japan. The trust acquired the One's Mall in greater Tokyo last year.

Total assets in the trust rose 28 per cent in the year ended June 30, to 100 billion yen (S$1.16 billion), the company reported Aug. 26.

The average cost of debt has been declining since its listing in 2013, Mr Yong said. The trust's yen-denominated cost of debt has dropped from about 1.4 per cent to about 1.2 per cent and further acquisitions will lower the cost to 1 per cent, he said.

"The world seems different today," Mr Yong said. "We have to give markets a bit of time to find its footing, two to three weeks to see some stabilization," he said.