Croesus Retail Trust - CIMB Research 2016-02-12: Driven mainly by acquisitions

Croesus Retail Trust - CIMB Research 2016-02-12: Driven mainly by acquisitions CROESUS RETAIL TRUST S6NU.SI 

Croesus Retail Trust - Driven mainly by acquisitions 

  • 2QFY16 boosted by new acquisitions and higher contributions from Mallage Shobu. 
  • High portfolio occupancy, low lease renewals over next two years. 
  • Funding cost could continue to trend down. 
  • AEIs at Torius and One’s Mall to provide medium-term earnings growth. 
  • Maintain Add with DDM-based target price of S$0.95. 

■ Higher performance on new acquisitions 

  • CRT’s 2Q and 1HFY16 DPU were largely within expectations, making up 24% and 46% of our estimates, respectively. 
  • The 25% jump in 2Q top line was due to inclusion of 2.5 months’ contributions from Torius as well as income from One’s Mall and better performance from Mallage Shobu post completion of AEI in Oct 15. This was partly moderated by higher property expenses at One’s Mall and Torius, which resulted in lower NPI margin of 56.2% (vs 61.4% previously). 

■ High portfolio occupancy 

  • 2QFY16 portfolio occupancy remained high, between 95.8-100%, as take up at Croesus Tachikawa recovered back to 100% this quarter. 
  • Portfolio NPI yield remained unchanged at 6.6%. 
  • With only 6.6% of leases to be renewed each year in FY16 and FY17, we expect income from CRT to remain stable. 

■ Interest cost could continue trending down 

  • With the recent move into a negative interest rate environment, we expect funding cost in Japan to remain low. This would be beneficial to CRT, with an estimated 17% and 48% of its loans due to mature in FY17 and FY18. 
  • We believe this could lower the current average interest cost of 1.9% when these facilities are rolled over. This has yet to be factored into our estimates. 
  • Gearing stood at 46.3% as at Dec 15. 

■ Planning AEI at One’s Mall and Torius property 

  • The group is planning to improve returns from One’s Mall and its Torius property through a series of AEIs to boost their attractiveness to both consumers and tenants. 
  • While no return targets have been detailed, CRT has demonstrated its track record to boost returns on its properties with the recent Mallage Shobu AEI, which generated an estimated ROI of 16%. 
  • We believe some of the AEI could involve enhancing the look and efficiency of Torius as well as working with AEON to potentially relook at offerings at One’s Mall. 

■ Maintain Add rating 

  • We leave our FY16-18 forecasts largely unchanged but lower our DDM-based target price to S$0.95 as we adopt a higher cost of equity of 9% (8.6% previously). 
  • We maintain our Add call. 
  • CRT offers investors attractive FY16-17 DPU yield of 9.5-9.7%. 
  • Furthermore, with the expected FY16 and FY17 distributions hedged, the trust should offer a stable return in the medium term, in our view.

LOCK Mun Yee CIMB Securities | 2016-02-12
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 0.95 Down 1.00