Croesus Retail Trust - CIMB Research 2015-09-29: Venturing into Fukuoka

Croesus Retail Trust - CIMB Research 2015-09-29: Venturing into Fukuoka CROESUS RETAIL TRUST S6NU.SI 

Croesus Retail Trust Venturing into Fukuoka 

  • Buys Torius property, one of the largest suburban retail malls in Fukuoka. 
  • Acquisition price of ¥7,997m translates to a 7.8% NPI yield, accretive when compared to current portfolio NPI yield of 5.3%. 
  • Lowers asset concentration, improves income diversification and growth outlook with shorter WALE and reduced exposure to the two AEON Town master leases. 
  • Deal to be funded by debt and proceeds from rights issues, slight accretion to proforma DPU yield. 
  • Maintain Add with a lower ex-rights DDM-backed target price of S$1.00. 

CRT diversifies into Fukuoka 

  • CRT announced it has acquired Torius property, a suburban retail mall in Fukuoka Prefecture. It is one of the largest retail facilities in Fukuoka City and is located close to train stations along the JR Kashii Line and JR Sasaguri Line. The property comprises 36 buildings with a total NLA of 77,032sm, as well as 4,200 car park bays. Current occupancy stands at 95.3% with 145 tenants including Costco, Nafco, United Camera, Rakuichi Rakuza, Daiso, GU and Gap Outlet. 

Accretive acquisition, NPI yield of 7.8% is higher than existing portfolio yield 

  • The purchase price of ¥7,997m is at a 3.7% discount to an independent valuation of ¥8,300m and offers a 7.8% NPI yield, higher than the existing portfolio NPI yield of 5.3%. With a shorter weighted average lease to expiry (WALE) of 6.8 years, CRT’s portfolio WALE would also be shortened to 8.2 years, thus allowing CRT to leverage into any potential rental recovery when leases expire. 

Improving portfolio and income diversification 

  • The acquisition will not only expand CRT’s presence into Fukuoka, which has seen consistent improvement in CPI since Jan 2013, it will also increase portfolio NLA and value by 31% and 9.4%, respectively. 
  • The purchase will also diversify its portfolio NPI with no single asset making > 27% of NPI as well as lower asset concentration risk with AEON Town Moriya and AEON Town Suzuka making up only 26% of NPI. 
  • Furthermore, contributions from top 10 tenants would also be reduced to 48.5% of total rental income. 

Funded by debt and rights issue proceeds 

  • The deal will be funded through a combination of debt (¥4,000m) and proceeds from an underwritten and renounceable rights issue of 22 rights for every 100 existing units (¥5,852.8m) at an issue price of S$0.61/unit. The rights price is at a 29.1% discount to the Sep 28 closing of S$0.86 and at a 25.2% discount to the theoretical ex-rights price of S$0.815/unit. 
  • Post transaction, CRT’s leverage ratio would be reduced slightly to 46.5%. 

Maintain Add rating 

  • We raise our FY16 and FY17 distribution incomes by 10-14% but DPU is lower by 2.6- 6% as we adjust for the rights issue. 
  • We maintain our Add rating on CRT with an exrights DDM-backed target price of S$1.00. Based on a theoretical ex-rights price of S$0.815, CRT offers investors an FY16 DPU yield of 9.3%. 
  • We recommend investors subscribe for the rights. 

LOCK Mun Yee CIMB Securities | 2015-09-29
CIMB Securities Analyst Report ADD Maintain ADD 1.00 Down 1.01