CIMB Securities 2015-08-26: Croesus Retail Trust - Benefiting from AEI activities.


Benefiting from AEI activities 

  • CRT reported 1% and 2.8% yoy DPU growth for 4QFY6/15 and FY6/15, respectively, broadly in line with expectations. The earnings expansion was achieved largely on the back of acquisitions, with three new purchases over the past 18 months. 
  • Looking ahead, we expect organic growth to be the major driver to FY16 earnings, with higher contributions from Mallage Shobu post AEI and full-year earnings from One’s Mall. 
  • In addition, the trust could also explore AEI opportunities at One’s Mall. With cap rates compressing amid a buoyant property market, acquisition prospects could come from second tier cities. 
  • We fine-tune our DPS estimates but maintain our Add rating, with an unchanged DDM-based target price of S$1.10. 

Earnings driven by acquisition growth 

  • CRT reported 4Q15 DPU growth of 1% yoy to 2.02 Scts. This was achieved on a 25.5% jump in revenue to JPY1,989m and NPI growth of 18.2% to JPY1,205.6m. The better topline performance was largely due to new contributions e.g. from Croesus Tachikawa, Luz Omori and One’s Mall in Mar and Oct 14. This more than offset the drag from Mallage Shobu where increased AEI repair expenses and tenant renewal activity had temporarily disrupted earnings. 
  • Book NAV was boosted by a 7.9% uplift in portfolio value, due largely to cap rate compression, helping lower gearing to 47.3%. 

Driving organic growth potential 

  • Going into FY16, we expect organic growth to be the key driver to earnings, with higher earnings from Mallage Shobu post-AEI, a full year’s contributions from One’s Mall as well as possible AEI opportunities at One’s Mall. Mallage Shobu’s makeover involved 69 new brands, 28 refreshed store transfers and 58 renewed leases. 
  • In addition to achieving higher rents at the mall, the trust is also looking to increase the variable rent component to enable it to boost tenant sales. With rapid cap rate compression in the market, CRT plans to tap acquisition growth opportunities in second tier cities with good fundamentals and value. 

Retain Add call 

  • We keep our Add rating, with a DDM-based target price of S$1.10. Earnings stream is stable with good forex visibility. The trust has hedged close to 100% of its earnings till end-2016 at an S$/JPY exchange rate of 85.4. 
  • In addition, 100% of its debt is hedged and there is no refinancing due till FY17.

LOCK Mun Yee | PANG Ti Wee | CIMB Securities 2015-08-26
ADD Maintain ADD 1.10 Same 1.10