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
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http://www.poems.com.sg/
2016-08-30
Phillip Securities
SGX Stock
Analyst Report
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