Croesus Retail Trust - RHB Invest 2016-02-12: High-Yielding Safe Haven

Croesus Retail Trust - RHB Invest 2016-02-12: High-Yielding Safe Haven CROESUS RETAIL TRUST S6NU.SI 

Croesus Retail Trust - High-Yielding Safe Haven 

  • CRT reported a solid 2QFY16, with NPI and DPU up 14.1% and 5.3%. 
  • Mallage Shobu’s tenant renewal exercise is mostly completed, which resulted in higher contribution. 
  • Going forward, we expect a better 2HFY16 on seasonality and full contribution from its recent acquisition, Torius Mall. 
  • CRT is also likely able to refinance its maturing debt at lower finance costs, which is beneficial. 
  • With a high dividend yield of over 9%, we keep BUY on this defensive safe haven with a SGD0.93 TP (16% upside). 

High-yielding defensive pick. 

  • With Japan adopting negative interest rates in a surprise move, we think this is a positive for Croesus Retail Trust (CRT) as it would likely be able to refinance its maturing debt at lower interest costs. 
  • In addition, debt financing for future acquisitions would also be at lower costs. 
  • With its approximately 100% occupancy rate, long weighted average lease expiry (WALE) and fully-hedged DPU till FY17 (Jun) set to reduce any currency risks and fixed interest costs for two years, we firmly believe that CRT is a safe haven for investors especially in current market conditions, as it provides clear earnings visibility and stability with an added bonus of over 9% dividend yield. 

Malls are outperforming despite current climate. 

  • Although retail sales figures are down in Japan, CRT’s portfolio of defensive suburban retail malls has mostly remained resilient, with increased net property income (NPI) contribution from most of its malls. 
  • Footfall and sales across Mallage Shobu have also increased by 4.4% and 6.3% YoY respectively in 1HFY16 from 1HFY15 levels. 

Acquisitions still part of growth strategy. 

  • We understand that CRT will likely expand its portfolio by buying similar-style malls in Japan, especially now that it is able to benefit from Japan’s adoption of negative interest rates. 
  • Management highlighted that any potential acquisition will likely be earnings-accretive. 

Rock-steady 2QFY16. 

  • CRT reported a solid 2QFY16, with NPI and DPU up 14.1% and 5.3% respectively, partially due to better performance across all its malls as well as 2.5 months of contribution from its latest acquisition, Torius Mall. 
  • DPU for 2QFY16 stood at 1.79 SGD cents, a 5.3% increase YoY, while 1HFY16 DPU amounted to 3.5 SGD cents, up 2.9% YoY despite missing contribution from Torius in 1QFY16 coupled with the 30% rights dilution. 

Asset enhancement initiative (AEI) plans for Torius still not fixed. 

  • We understand that the AEI plans for Torius are still under the planning stage and there will likely not be any big AEI plans in the near term. 
  • However, management highlighted that it is keen to undergo AEI for Torius to fully realise its potential of achieving much higher rentals when compared to its peers in the surrounding area.

Jarick Seet RHB Invest | 2016-02-12
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