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.

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.

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.

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.

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.

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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