Croesus Retail Trust - CIMB Research 2016-04-08: Ventures into Hiroshima

Croesus Retail Trust - CIMB Research 2016-04-08: Ventures into Hiroshima CROESUS RETAIL TRUST S6NU.SI 

Croesus Retail Trust - Ventures into Hiroshima 

  • Expands presence into Hiroshima with the Fuji Grand Natalie purchase. 
  • Property is well located near population catchment and transport conveniences. 
  • Long WALE of 8.2 years extends trust’s income visibility. 
  • Accretive acquisition, NPI yield of 6.3% is above market cap rates and higher than its blended cost of capital. 
  • We maintain our Add rating with a revised target price of S$0.91. 

Expands footprint into Hiroshima 

  • CRT has announced acquisition of the Fuji Grand Natalie in Hiroshima, for ¥3,300m (S$40.2m), 6.3% below property valuation. This is CRT’s first purchase in Hiroshima. 
  • Located in Hatsukaichi City, the property is a prominent large-scale suburban shopping mall and well located within walking distance to the Hiroden Ajina Station of Miyajima Line and JR Ajina Station of Sanyo Line and is next to Prefectural Road 2, a major access road between Hiroshima City and Kyushu. 

Strong resident catchment in vicinity 

  • There are 53 subtenants offering supermarket, fashion, goods and services, F&B, fitness and an amusement centre within the mall. This allows it to function as a one-stop shopping, dining and leisure destination. 
  • Hiroshima enjoyed above national average household growth over the past 10 years. 
  • In addition, there is a strong resident catchment within a 10km radius of the property, with households earning a higher than annual average income making close to half of catchment pool. 

Accretive deal as NPI yield is higher than blended cost of capital 

  • The 31,065sm NLA property has a WALE of 8.2 years and is master leased to Fuji Co until Mar 24. CRT will finance the purchase through ¥2,373.1m debt (cost of debt: 0.6%) and from part of the proceeds of a placement exercise completed recently. 
  • The property NPI yield of 6.3% compares favourably with market transaction cap rates of 5.6-5.9% and above the estimated cost of capital of c4%. 
  • Post-acquisition, CRT’s AUM will expand 3.7% to ¥99.8bn with strong diversification, with no single property making up more than 26% of total NPI. 

More room for further acquisitions 

  • Post this purchase, CRT has an estimated remainder of S$33m of cash proceeds from the recent of private placement exercise. This will enable the group to continue looking for more purchase to expand its portfolio and earnings base.
  • The company’s pipeline of properties includes Mallage Saga, for which the trust has further extended its option for a first right to negotiate for purchase. 

Maintain Add 

  • We raise our FY16-18 DPU estimates by 0.4-4.6% to factor in the new contributions. 
  • Correspondingly, our DDM-based target price is also increased by 3.4% to S$0.91. 
  • CRT offers investors FY16-17F DPU yield of 9.3-9.6%. 
  • With potential upside of 12.5%, we maintain our Add recommendation on CRT shares. 

LOCK Mun Yee CIMB Securities | 2016-04-08
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 0.91 Up 0.88