Croesus Retail Trust - CIMB Research 2015-12-09: Inorganic earnings drivers

Croesus Retail Trust - CIMB Research 2015-12-09: Inorganic earnings drivers CROESUS RETAIL TRUST S6NU.SI 

Croesus Retail Trust - Inorganic earnings drivers 

  • Growing portfolio value and income through acquisitions. 
  • Torius acquisition provides geography and WALE diversification. 
  • High percentage of locked-in leases in FY16-17. 
  • New acquisitions to drive income growth. 
  • Maintain Add with a DDM-based target price of S$1.00. 

■ Strong expansion in portfolio 

  • AUM CRT’s portfolio value has expanded c44% to ¥93.7bn since its listing, thanks to new acquisitions as well as an expansion in property values on the back of income growth and cap rate compression. This was accompanied by a projected distribution income growth of c.34%. 
  • Portfolio occupancy remains a high 88.4-100%, thus ensuring a stable income base. 

■ Acquisition of Torius property provides portfolio diversification 

  • The recent acquisition of the Torius property expanded CRT’s presence into Fukuoka. The property is a suburban retail mall and is one of the largest retail facilities in Fukuoka city. 
  • Apart from offering 7.8% NPI yield, the property has a shorter WALE of 6.8 years, thus reducing CRT’s portfolio WALE to 8.2 years. This allows the trust to capitalise on any potential rental recovery when leases expire. 

■ High proportion of locked-in leases in FY16 and FY17 

  • An estimated 95% of rentals are locked in for FY16 and 92% in FY17. As such, CRT has a minimal 5.2% of rental income to be renewed in FY16 and 3.1% in FY17. This provides the trust with strong earnings visibility. 
  • With about one-third of its leases having a variable rent component and low occupancy cost in the high single digits, we believe that income growth could be derived from higher shopper footfall and spending. 

■ New contributions from acquisitions to drive growth 

  • CRT’s projected bottomline growth will come from a full year’s contribution from One’s Mall and the Torius property. The latter was bought in Oct 15 at an NPI yield of 7.8%. 
  • With compressing cap rates amid a buoyant property market, acquisition opportunities should likely come from second tier cities. 
  • With a post-rights gearing of 46.5%, we believe that any new purchases will have to be funded by a combination of debt and equity. 

■ Maintain Add rating 

  • We retain our Add call with an unchanged DDM-based target price of S$1.00. 
  • CRT offers investors an attractive FY16 DPU yield of 9.3%. The trust has hedged its income until end-FY17, thus providing strong dividend visibility

LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2015-12-09
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 1.00 Same 1.00