Croesus Retail Trust - CIMB Research 2017-02-14: Acquisitions and one-offs boost earnings

Croesus Retail Trust - CIMB Research 2017-02-14: Acquisitions and one-offs boost earnings CROESUS RETAIL TRUST S6NU.SI

Croesus Retail Trust - Acquisitions and one-offs boost earnings

  • 1HFY17 DPU of 3.6 Scts met expectations, accounting for 47% of FY17 forecast.
  • Better operating performance and one-offs boosted earnings.
  • Planned AEI at Torius and interest savings to drive medium term bottomline growth.
  • Upcoming refinancing could provide further earnings uplift.
  • We maintain our Add call with an unchanged target price of S$0.98.

2QFY17 results highlights 

  • CRT reported 31%/23% yoy jump in 2QFY17 revenue and NPI to ¥3,181m/¥1,685m, boosted by income from new acquisitions purchased in Oct 15-May 16, one-off tenant early termination penalty and higher tenant sales at Mallage Shobu. 
  • 2QFY17 DPU was up 5.2% yoy to 1.81 Scts while 1HFY17 DPU rose 7.5% yoy to 3.6 Scts in line with expectations, forming 47% of our full-year forecast.

Higher portfolio occupancy and one-offs boosts 

  • DPU Portfolio occupancy also rose to 98%, led largely by Feeal Asahikawa, Mallage Saga and One’s Mall. 
  • Feeal Asahikawa saw its NPI jump to c.¥41m in 2Q (vs. -¥0.5m in 1Q) thanks to higher occupancy of 94.8% with new incoming tenants following its asset enhancement initiative (AEI) and higher achieved rentals. We reckon Mallage Shobu’s 2Q NPI rose 35% yoy with the inclusion of the early termination penalty and higher tenant sales.

Asset enhancements to drive DPU growth 

  • In our view, asset enhancements and cost savings from its internalisation exercise would likely continue to drive DPU growth. 
  • On the cards are plans to enhance Torius over the next 12-24 months. It is in the process of negotiating with potential tenants for the new annexe. It is also looking to embark on phase 2 AEI at Feeal Asahikawa and will continue to seek reputable tenants from neighbouring department stores. This is in addition to the 20.9% of leases to be re-contracted in FY17-18.

Debt refinancing could result in more savings 

  • In terms of capital management, recent refinancing of ¥7,413m loans in Jan 17 is expected to result in interest cost savings of ¥152m p.a. The trust is also looking to refinance ¥32,649m of loans due in FY18-19. 
  • Given the still-low interest rates in the near term, there could be further interest cost savings. 
  • The trust’s gearing stands at 46.1% as at 2QFY17, within its target range of 45-50%. As such, we think any acquisitions could likely be funded via debt and equity.

Maintain Add 

  • We leave our FY17-19 DPU estimates unchanged and maintain our Add call with a DDM-based target price of S$0.98. 
  • CRT offers investors strong DPU visibility as its distribution income is hedged till Dec 2018 at S$/¥ exchange rate of 83.57-71.05. In addition, potential cost savings from debt refinancing could provide further earnings uplift, which we have not factored into our present forecast. 
  • Key risks include a slowdown in the Japan real estate market or a faster than expected rise in interest rates.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-02-14
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