Croesus Retail Trust looks to take manager in-house for S$50m (Amended)

Singapore

IN what may be the first move of its kind here, a mainboard-listed business trust is looking to bring its trustee-manager into its fold.

Croesus Retail Trust (CRT) said on Sunday that the proposed sum for internalising its trustee-manager, Croesus Retail Asset Management, is 4.1 billion yen, or S$50 million.

In internalising Croesus Retail Asset Management, CRT, which has been listed since 2013, hopes to bring overall management and day-to-day operations "in-house".

Cost savings from this exercise is expected to increase potential distributions to unitholders, said CRT, which focuses its investments on 11 retail properties in Japan.

As an example, it said that the pro forma distribution per unit (DPU) of CRT in financial year 2015 would increase to about 8.02 Singapore cents from the 7.94 Singapore cents that was issued.

"Post internalisation, CRT will be better positioned to maximise value for its unitholders through cost savings and a stronger alignment of interests," said David Lim, chairman and independent director of Croesus Retail Asset Management.

CIMB has been appointed to advise the independent directors of the trustee-manager and the audit and risk committee on the internalisation.

Should the proposal be approved, unitholders can also have the right to endorse the appointment of each of the directors in Croesus Retail Asset Management at CRT's annual general meeting by way of ordinary resolution, the trust added in the release.

The S$50 million purchase consideration is at a discount of between 2.4 to 8.9 per cent of the valuation of the trustee-manager, said CRT.

To fund the internalisation, between S$20 million to S$22.1 million of the proposed S$50 million sum will be raised through the issuance of new units, said CRT. This comes up to between 25,641,026 to 32,722,285 preferential offering units.

Eligible unitholders will be offered on a pro rata basis of up to one new unit for every 22 existing units that they hold at the preferential offering books closure date. This date will be determined at an upcoming extraordinary general meeting (EGM).

The new units will be issued at a price of at least S$0.7293 apiece. This is a discount of not more than 10 per cent to the volume weighted average for trades done on the Singapore Exchange (SGX) on June 10, a Friday. The counter had closed on Friday at S$0.815.

Croesus Retail Asset Management and Citigroup Global Markets Singapore, which is lead manager and underwriter for the new units, had entered into the underwriting agreement on Sunday.

The remaining sum for internalisation will be funded through part of the proceeds from the earlier issuance of fixed rate notes, and also from CRT's existing cash balances of about S$10 million.

Aside from determining the books closure date, the EGM will see CRT seeking unitholders' approval for these proposals.

There has been continuous debate in recent years over whether Singapore real estate investment trusts (Reits) and business trusts should be internally or externally managed so that governance can be strengthened.

While external managers owe a fiduciary duty to act in the best interests of investors, separating ownership and control raises the risk that managers or related parties will use the assets for their own gains at the expense of unitholders.

Yet, observers have also said that after managers have been taken in-house, investors may start pricing in operational risks, in the same way they have discounted the shares of property development companies.

CRT's latest properties include Mallage Saga, the second largest shopping mall in Saga, Japan, and Feeeal Asahikawa, a large-scale shopping centre in Hokkaido's Asahikawa.

Amendment note: An earlier version of the article wrote in its sub-header that this may be the first case of internationalisation. It should be internalisation. The article has been edited to reflect this.