Croesus Retail Trust - CIMB Research 2015-11-11: Inorganic growth drivers

CROESUS RETAIL TRUST S6NU.SI

Croesus Retail Trust - Inorganic growth drivers

1QFY16 results in line; bottom line boosted by new contributions from acquisitions.
Portfolio occupancy remains high; large proportion of locked-in leases provides strong income visibility.
Add maintained with unchanged DDM-backed target price of S$1.00.

CRT’s 1QFY16 results were largely in line with expectations, with DPU of 2.08 Scts, making up 24% of our FY16 estimates. DPU was flat due to an enlarged units base following a private placement exercise in Sep-14.
At the top line, revenue grew 17% yoy to ¥2,006.6m, thanks to new contributions from One’s Mall (bought in Oct-14) and higher income from Mallage Shobu post AEI.
After adjusting for a net change in fair value of financial derivatives, distribution income was 16% higher yoy at ¥918.5m.

1QFY16 portfolio occupancy remained generally high, between 96.5% and 100%, with slight frictional vacancy from Croesus Tachikawa, which saw take-up sliding to 88.4% due to a non-renewal of 1 tenant. The space has seen been pre-committed at similar rental rates.
Portfolio NPI yield rose to 6.6% from 6.5% in the previous quarter, with higher rents and income from Mallage Shobu post AEI. Luz Omori also saw an uptick in NPI.

Looking ahead, an estimated 95% and 92% of FY16 and FY17 rentals have been locked in. CRT has only 5.2% and 3.1% of rental income to be renewed in FY16 and FY17. This provides the trust with visible and strong earnings visibility.
With an estimated one-third of its leases having a variable rent component and low occupancy cost in the high single digits, we believe income growth could also be derived from higher shopper spending and footfalls.

CRT’s bottom-line growth will come, in our view, largely from a full year’s income contribution from One’s Mall and the Torius property. The latter was acquired in Oct-15 at a NPI yield of 7.8%.
With cap rates continuing to compress amid a buoyant property market, acquisition opportunities should likely continue to come from second-tier cities.
With a post-rights gearing of 46.5%, we believe any new purchases would likely be funded by a combination of debt and equity.

We maintain our Add rating with an unchanged DDM-backed target price of S$1.00.
CRT offers investors what in our view is an attractive FY16 DPU yield of 9.2%. The trust has hedged its income until end-FY17, thus providing strong dividend visibility.

LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2015-11-11

CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 1.00 Same 1.00