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
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http://research.itradecimb.com/
2015-12-09
CIMB Securities
SGX Stock
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