Croesus Retail Trust - DBS Research 2016-05-16: Ready to fly

Croesus Retail Trust - DBS Research 2016-05-16: Ready to fly CROESUS RETAIL TRUST S6NU.SI 

Croesus Retail Trust - Ready to fly

  • Acquires three Japan retail malls on NPI yield of 7.1%
  • 3% uplift to our FY17F DPU but 9% dilution to FY16F DPU due to recent equity placement
  • 3Q16 DPU of 1.86 Scts (+3% y-o-y) in line with expectations



Previous concerns addressed. 

  • Following the DPU accretive acquisitions of three retail malls, we upgrade our call on Croesus Retail Trust (CRT) to BUY with a revised TP of S$0.90
  • While we were previously cautious on the stock given the potential devaluation of the JPY and concerns over its high gearing (above 45%), we believe these issues have been allayed given the recent JPY strength, support from several of CRT’s large shareholders as demonstrated by the recent equity placement and Japanese banks being comfortable with the ability of CRT’s properties to support gearing closer to the 50% level. 
  • In addition, with CRT able to secure cheap debt (sub 1% interest rate), it has the funding advantage near term to pursue further DPU accretive acquisitions. Thus, re-rating constraints previously have now been removed.


Boost from Mallage Shobu and four recent acquisitions. 

  • This year, CRT should benefit from 
    1. the renewal of Mallage Shobu which achieved double-digit rental reversions; and 
    2. full-year contribution from the acquisition of Torius property in Fukuoka (7.8% NPI yield) in Sep15 and recent purchase of three retail malls (Fuji Grand Natalie, Mallage Saga and Feeeal Asahikawa) on 7.1% NPI yield. 
  • In addition, with FY18 income hedged at SGD/JPY rate of 76.4, CRT will have one of the highest growth rates among our SREIT universe with a two year DPU CAGR of 13% in SGD terms.
  • Medium-term upside potential from AEIs. Over the medium term, CRT should also receive a boost from potential AEI and/or tenant remixing at One’s Mall, Torius Mall and Feeeal Asahikawa. This is in addition to any further acquisitions.


Valuation:

  • After incorporating the recent acquisitions and rolling forward to FY17, we raised our DCF-based TP to S$0.90 from S$0.86.


Key Risks to Our View:

  • The key risk to our view include: 
    1. weaker JPY versus SGD, 
    2. higher-than-expected take-up of its DRP (we have assumed 25% take-up) and 
    3. lower-than-expected uplift 




Mervin Song CFA DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2016-05-16
DBS Vickers SGX Stock Analyst Report BUY Upgrade HOLD 0.90 up 0.86


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