DBS Vickers 2015-08-27: Croesus Retail Trust - Steady progress.


Steady progress 

  • 4Q15 DPU of 2.02 Scts in line with expectations. 
  • Full benefits from AEI and tenant remix at Mallage Shobu yet to come. 
  • Potential lowering of gearing to mirror new REIT guidelines. 
  • Maintain HOLD, TP reduced to S$0.92. 


4Q15 results in line. 

  • CRT’s 4Q15 DPU of 2.02 Scts (+1% y-o- y) was in line with our expectations, taking FY15 DPU to 8.08 Scts (+3%). The increase in 4Q15 DPU was underpinned by 18% increase in NPI to JPY1,020m on the back of acquisitions of Croesus Tachikawa, Luz Omori and One’s Mall over the last year. In addition, post AEI works and tenant remixing at Mallage Shobu, CRT benefited from double digit rental reversions. 
  • Nevertheless, the smaller y-o-y increase in DPU was due to higher number of shares following the share placement to fund the purchase of One’s Mall in Sep-14. 

Outlook Uplift from renewals and AEI. 

  • With the renewal of Mallage Shobu largely completed only from Mar-15 and the property experiencing some short term frictional vacancy in FY15, we expect the full benefits from double digit rental reversions to accrue over the coming year. 
  • We estimate this should translate to c.5% uplift in group NPI in FY16F. In the medium term, there is also upside from the replication of the successful tenant remixing program at Mallage Shobu to the recently acquired One’s Mall. 

Gearing to potentially trend lower. 

  • Cognisant of the demands from investors in the REIT sector, CRT guided that it may potentially lower its gearing towards the 45% level, in line with the gearing limit imposed by MAS on the REITs. This is despite CRT being able to support higher debt levels due to the fact it is a business trust, the long visible cashflows of its properties (88% of its GRI are on fixed leases) and low cost of debt in Japan. CRT intends to reduce its gearing through asset revaluation gains and its dividend reinvestment plan (DRP). CRT’s gearing currently stands at 47.3%, down from 51.7% as at end Jun-14 due to the 7.8% increase in its portfolio value. 


  • We have reduced our DCF-based TP to S$0.92 from S$0.95 after increasing the number of shares on issue. We now incorporate a 25% take up rate for CRT’s DRP program. Our FY16-17F DPU (JPY terms) is likewise trimmed by 3-5%. 
  • While CRT trades at an attractive FY16F yield of 8.8%, given the significant market volatility, we believe a re-rating in the near term will be capped by CRT’s smaller market cap (c.S$450m) and higher gearing ratio versus other listed S- REITs. Thus, we maintain our HOLD recommendation. 

Key Risks: 

Japan fails to fire. 

  • The risk to our view is a slower-than- expected reflation of the Japanese real estate market. 

Foreign exchange. 

  • Forex volatility is also another risk, as the trust collects its rental income in yen but makes distributions to unit holders in Singapore dollars. CRT has partially mitigated this risk by hedging its projected distributable income until December 2016.

Mervin SONG CFA | Derek TAN | http://www.dbsvickers.com/ DBS Securities 2015-08-27
HOLD Maintain HOLD 0.92 Down 0.95