Croesus Retail Trust - DBS Research 2017-02-15: Changes are still in the making

Croesus Retail Trust - DBS Vickers 2017-02-15: Changes are still in the making CROESUS RETAIL TRUST S6NU.SI

Croesus Retail Trust - Changes are still in the making

  • 2Q17 DPU was 1.81 Scts, up 5.2%, in line.
  • Top line boosted by acquisitions and one-off early termination compensation.
  • Refinancing expected to incur interest savings.
  • AEIs at recent acquisitions could bring DPU upside.



Management internalisation improves alignment and removes takeover barrier. 

  • We believe the perception of a greater alignment between the interest of Croesus Retail Trust (CRT)’s unitholders and management following CRT’s move to be the first internally managed trust will help close the discount to our TP. This is despite dissatisfaction from some unitholders with the price paid to buy out CRT’s trustee-manager (c.S$50m) and concerns over the large upfront cash payment to the current management team for their stake in the trustee-manager. 
  • In addition, we believe that without an external trustee-manager, CRT could remove a hurdle to potential takeover by a J-REIT as speculated by some market participants due to the Trust’s persistent high yield and discount to its NAV.


Boost from recent acquisitions. 

  • Going forward, CRT should benefit from the full-year contribution from the recent acquisitions of Torius (October 2015), Fuji Grand Natalie (April 2016) and Mallage Saga and Feeeal Asahikawa (May 2016). 
  • In addition, with FY18 income hedged at SGD/JPY rate of 76.4, down from 83.6 in FY17, CRT has one of the highest growth rates among our S-REIT universe with a two-year DPU CAGR of 8% in SGD terms. This is before any interest savings on the back of lower Japanese interest rates which we have yet to be fully priced in.


Medium-term upside potential from asset enhancement initiatives (AEI). 

  • CRT should also receive a boost from potential AEI and/or tenant remixing at One’s Mall, Torius Mall and Feeeal Asahikawa. This is in addition to any further acquisitions.


Valuation

  • With 2Q17 results in line with expectations, we maintain our DCF-based TP of S$0.99.


Key Risks to Our View

  • The key risks to our view include: 
    1. weaker JPY versus SGD, 
    2. higher-than-expected take-up of its Dividend Reinvestment Plan (DRP) which we have assumed at c.25%, and 
    3. lower-than-expected uplift in rents.




Singapore Research DBS Vickers | Mervin SONG CFA DBS Vickers | Derek TAN DBS Vickers | http://www.dbsvickers.com/ 2017-02-15
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.990 Same 0.990



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