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

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.

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.

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.

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.

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