Croesus Retail Trust - DBS Research 2015-11-12: In a holding pattern for now

Croesus Retail Trust - DBS Research 2015-11-12: In a holding pattern for now CROESUS RETAIL TRUST S6NU.SI 

Croesus Retail Trust - In a holding pattern for now 


Weighed by investor concerns. 

  • We maintain our HOLD recommendation with a revised TP of S$0.86. 
  • While CRT offers an attractive 8.7% FY16F yield, we believe a re-rating faces several headwinds including 
    1. Singapore-based investors' unwillingness to accept CRT’s higher-than-average gearing of 46-47% despite its structure as a business trust and the ability of the properties to support higher gearing limits, and 
    2. the overhang from weaker JPY on DPU (estimated FY15 SGD/JPY hedge rate of 81 vs c.85 in FY16F) and potential further devaluation of the JPY should the Bank of Japan (BOJ) initiate a new round of quantitative easing to counter the slowing GDP growth and inflation in Japan. 


Boost from renewal of Mallage Shobu and acquisition of Torius property. 

  • Over the coming year, CRT should benefit f property. rom 
    1. the renewal of Mallage Shobu which resulted in double-digit rental reversions, 
    2. the full-year contribution of the One’s Mall acquisition in late 2014, and 
    3. the recent JPY8bn (c.S$95.2m) acquisition of Torius property in Fukuoka on a 7.8% NPI yield. 

Medium- term upside potential from AEI. 

  • Over the medium term, CRT should also receive a boost from potential AEI and/or tenant remixing at One’s Mall and Torius Mall. This is in addition to any further potential acquisitions. 

Valuation: 

  • After incorporating the Torius property acquisition and the 22 for 100 rights issue at S$0.61 per unit, we cut our FY16-17F DPU by 3-7% and lowered our DCF-based TP to S$0.86 from S$0.92. 
  • With limited upside to our revised TP, we maintain our HOLD recommendation. 

Key Risks to Our View: 

  • The key risks to our neutral view include: 
    1. stronger JPY versus SGD, 
    2. lower-than-expected take-up of its DRP (we have assumed 25% take-up), 
    3. better-than-expected uplift in rents, and 
    4. further DPU-accretive acquisitions.


Mervin Song DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2015-11-12
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 0.86 Down 0.92


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