Croesus Retail Trust - CIMB Research 2016-05-13: On a buying spree

Croesus Retail Trust - CIMB Research 2016-05-13: On a buying spree CROESUS RETAIL TRUST S6NU.SI 

Croesus Retail Trust - On a buying spree

  • 3QFY6/16 results in line; DPU of 1.86 Scts at 26% of our FY16 forecast.
  • Income uplift from Torius acquisition and Mallage Shobu AEI while occupancy remained high.
  • Buying Mallage Saga and Feeeal Asahikawa; acquisitions to expand asset base by 20% in FY16.
  • Acquisitions are accretive, estimated to boost FY17-18F DPU by 8.5-8.7%.
  • Maintain Add with higher target price of S$0.98.

Uplift from Torius and Mallage Shobu

  • CRT reported 3QFY16 revenue and NPI of ¥2,466m (US$22.6m) and ¥1,409m (US$12.9m), up 24.4% and 21.2% yoy, respectively, thanks to new contributions from Torius and higher income from Mallage Shobu, post AEI. 
  • Stripping out Torius, organic NPI improved c.7%. 
  • Correspondingly, DPU rose 19% yoy to 1.86 Scts.

High portfolio occupancy

  • During the quarter, CRT renewed an estimated 4.2% of FY16 leases and has a remainder 2.4% and 7.6% of leases due in FY16 and FY17. 
  • Portfolio occupancy remained high, between 95.2-100%, with overall NPI yield of 6.6%. 
  • We expect income to remain stable with minimal renewals over the next two years. 
  • While no details have been outlined as yet, AEI at Torius should boost income further when completed.

20% expansion in asset base in FY16 from new acquisitions

  • In addition to Fuji Grande Natalie, CRT is buying Mallage Saga (¥3.61bn) and Feeeal Asahikawa (¥2.5bn), bringing total acquisitions in FY16 to date to c¥17.7bn. 
  • Mallage Saga is the second largest mall in Saga City and enjoys c.98% occupancy with a diversity of tenants, offering shopping, dining and leisure activities. 
  • Located in Hokkaido, Feeeal Asahikawa is a mixed retail/office property that is well situated near major train stations, in the commercial and shopping hub of the city.

Acquisitions could boost FY17-18F DPU by 8.5-8.7%

  • Mallage Saga and Feeeal Asahikawa were acquired at NPI yields of 7.1% and 5.2% respectively, and are expected to be funded with the remaining rights issue proceeds and additional debt. 
  • We expect these purchases to be accretive when compared to the current portfolio NPI yield of 6.6%. 
  • Our FY17-18F DPU estimates have been raised by 8.5-8.7% to reflect the full-year impact of the additional contributions.

Room for lower funding cost

  • Post-acquisition, we expect gearing to rise to 48.4%, still within the group’s optimal level of 45-50%. CRT is working to refinance an existing ¥8.9bn (S$100m) worth of debt due in Jan 2017. The all-in funding cost of the loan is 3.83%. With the low interest rate environment in Japan, we expect to see significant cost savings when the loan is rolled over. This this should lower the present average funding cost of 1.91%.

Retain Add rating

  • In tandem with the higher earnings estimates, our DDM-based target is lifted by 7.7% to S$0.98. 
  • CRT offers investors FY16-17F DPU yields of 9.6-10.1%. The trust has locked in its FY16-18 distribution income at SGD/¥ exchange rates of between 85.01-76.43. This provides investors with strong income certainty. 
  • Maintain Add.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | 2016-05-13
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 0.98 Up 0.91