Croesus Retail Trust - Asahikawa Site Visit And 2QFY17 Results
- We visited CRT’s newly acquired Feeeal Asahikawa in Hokkaido, within a five-minute walk from the Asahikawa train station. We came away positive on the potential tenant replacements, coupled with AEIs that can be done to raise rental rates.
- Since acquiring the mall, AEIs totalling JPY170m have been done and 14 underperforming tenants replaced. Average rental rates have also rose to JPY8,000, from JPY7,000/tsubo/month.
- Its 2Q17 results were also in line, coupled with positive plans ahead on cost savings, forex hedging etc.
- Maintain BUY with a DDM-backed TP of SGD0.96 (10% upside).
Cost savings from lower finance costs.
- Management has been actively making use of the lower interest rate environment in Japan by refinancing its medium term notes (MTNs) and loans in the past few months.
- We think that there would likely be more of these cost saving initiatives to come, especially for its debts that are due this year as they are likely to be replaced with a much lower interest rate.
Potential replacement of portfolio properties.
- Since its listing, CRT has made several astute acquisitions and some of these have had their values increased rather significantly.
- We think that management might dispose some of these properties whom it feels they could be replaced with properties with higher net property income (NPI) yields or that the upside for these properties are peaking. However, we believe that any proceeds from the sale of any of these malls is likely to be immediately invested into another mall, as well as its asset enhancement initiative (AEI) plans for Torius and Asahikawa.
Key Risks :
- Depreciation of JPY and lowering retail sales
Maintain BUY - More AEIs and positive tenant replacements.
- Going forward, we expect AEI plans as well as positive rental renewals from some of its malls like Torius as well as Asahikawa to contribute positively to NPIs.
- Cost savings from financing, internalisation and a superior hedge forex rate would also bump up DPU.
- With a positive outlook, we maintain BUY with a DDM-backed TP of SGD0.96.