Croesus Retail Trust - CIMB Research 2016-08-26: Driven by acquisition growth

Croesus Retail Trust - CIMB Research 2016-08-26: Driven by acquisition growth CROESUS RETAIL TRUST S6NU.SI

Croesus Retail Trust - Driven by acquisition growth

  • 4QFY16 results uplifted by new acquisitions; FY16 DPU largely in line at 95% of our forecast.
  • Full contributions from new acquisitions, lease renewals and potential AEI at Torius should underpin growth from FY17 onwards.
  • Gearing lowered to 45.3% post revaluation, more room for inorganic expansion.
  • Cost savings from internalisation of Trustee-Manager should be felt from FY17 onwards.
  • Maintain Add with an unchanged DDM-based target price of S$0.98. 

4Q DPU in line, accounting for 23% of FY16 forecast 

  • 4Q16 topline/NPI surged 34.5%/19.4% yoy to ¥2,675.4m/¥1,439.5m, thanks largely to new income from acquisitions. In FY16, the group purchased four properties worth ¥17,407m. 
  • 4Q distribution income grew 22% yoy to ¥1068.5m while DPU improved a more marginal 6.9% to 1.7Scts post a rights issue and private placement to fund the purchases. 
  • Portfolio asset value increased 6.6% on better operating performance, while book NAV/unit rose a higher 9.1% to S$1.01/unit due to the stronger currency.

Organic income expansion to underpin FY17 earnings growth 

  • Looking ahead, a full 12-month contribution from the four new assets should underpin FY17 NPI growth. In total, we expect an additional c¥1.2bn annually. Furthermore, there are 12.6% and 9.1% of gross rental income to be renewed in FY17 and FY18, respectively. These are mainly at Mallage Saga, Mallage Shobu and Torius.
  • Management is also evaluating asset enhancement initiatives at Torius which could potentially include intensifying GFA there. This should boost returns in the long run.

Lower gearing and funding cost provides fuel for acquisitions 

  • Post revaluation, gearing is lowered to 45.3%. This translates to a debt headroom of ¥48.3bn (assuming gearing of 60%) for new purchases. In addition, CRT is working to refinance an existing ¥8,337m of debt due in Jan 17, which bears an all-in funding cost of 3.83%. 
  • We expect to see good cost savings when the loan is rolled over, under the current low interest rate environment in Japan. This should further reduce the current blended cost of debt of 1.9%.

Savings from internalisation of manager to boost bottomline 

  • The recent internalisation of the Trustee-Manager for ¥4,100m is expected to result in cost savings for CRT. Based on pro-forma estimates, annual savings could amount to c.¥300m and lift DPU by 1%. This should be felt from FY17 onwards.

Maintain Add 

  • We lower our FY17-18 DPU estimates by 2-3.5% to factor in the latest results and include the impact of the equity fund raising from the recent Trustee-Manager internalisation exercise. 
  • We retain our Add call and DDM-based target price of S$0.98.

CRT offers investors an attractive FY17 DPU yield of 10%. 

  • FY17 and FY18 distribution income has been hedged at an SGD/¥ exchange rate of between 83.58-76.18, providing investors with income distribution certainty.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | 2016-08-26
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