Croesus Retail Trust - Phillip Securities 2016-08-30: Visible growth drivers over next two years

Croesus Retail Trust  - Phillip Securities 2016-08-30: Visible growth drivers over next two years CROESUS RETAIL TRUST S6NU.SI

Croesus Retail Trust - Visible growth drivers over next two years

  • Revenue and DPU growth on the back of contributions from newly acquired malls and tenant renewals.
  • Non-property related savings such as savings from internalisation of asset manager and cheaper refinancing costs to boost bottom line in FY17 and FY18.
  • Concerns about the longer term prospects of the last 2 acquisitions due to deteriorating demographics. 



What is the news and how do we view this?


Revenue and DPU growth on the back of contributions from newly acquired malls and a successful tenant renewal exercise. 

  • Croesus Retail Trust (CRT) made 4 acquisitions since 2Q16, with these 4 properties Torius, Fuji Grand Natalie, Mallage Saga and Feeeal Asahikawa pushing 4Q16 revenue up 34.5% y-o-y. 
  • The higher expense ratios of these new malls are due to the multi-tenanted nature of the malls and the cooler weather conditions in Hokkaido, resulting in higher utilities expenses.

Non-property related savings such as savings from internalisation of asset manager and cheaper refinancing costs to boost bottom line in FY17 and FY18. 

  • Management guided that cost savings from non-property related aspects such as cheaper refinancing costs, more favourable FX hedge rates and internalization of asset manager could bring about as much as JPY 800m-1b in cost reductions annually by FY18. This compares with an income available for distribution of c.JPY 4b for FY16.

Concerns about the longer term prospects of the last 2 acquisitions due to deteriorating demographics. 

  • Saga City and Asahikawa City, where the latest 2 acquisitions Mallage Saga and Feeeal Asahikawa are located, are cities with small declining populations, unlike most of the other cities where CRT’s other malls are located. 
  • We think this could pose a concern for the longer term prospects of the latest 2 acquisitions. 
  • Notwithstanding the longer term repercussion, management has previously pointed out that the historical sales for these 2 malls have been stable. 
  • We will be closely monitoring the performance of these two malls closely. These 2 malls take up 6% of the total valuation of CRT’s portfolio.


Investment Action:


Upgrade to ACCUMULATE with an unchanged DDM-derived target price of S$0.93.

  • Though with some longer term concerns about the latest 2 acquisitions, these 2 malls take up only 6% of CRT’s total portfolio by valuation. 
  • We continue to like CRT for its long WALE and visible strong growth drivers over the next two FYs.




Dehong Tan Phillip Securities | http://www.poems.com.sg/ 2016-08-30
Phillip Securities SGX Stock Analyst Report ACCUMULATE Upgrade NEUTRAL 0.930 Same 0.930


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