Croesus Retail Trust - RHB Invest 2017-05-16: Takeover Talks Are Simmering

CROESUS RETAIL TRUST S6NU.SI

Croesus Retail Trust - Takeover Talks Are Simmering

CRT has reported positive 3QFY17 results, with NPI and DPU increasing 14.4% and 25.4% respectively due to several better tenant sales from Mallage Shobu and compensation from a tenant for early termination in Croesus Tachikawa.
There is also a possibility of a takeover of all of CRT’s units as announced on 26 Apr 2017.

As a result, we lift our FY17F NPI by 5% and raise our DDM-backed TP to SGD1.00 (from SGD0.97, 3% upside). However, we downgrade our call to NEUTRAL (from Buy) as the share price has already reached close to our TP.

Croesus Retail Trust (CRT) has reported positive 3QFY17 results, with NPI and DPU increasing 14.4% and 25.4% respectively due to several better tenant sales from Mallage Shobu and compensation from a tenant for early termination in Croesus Tachikawa.

Management has been actively making use of the lower interest rate environment in Japan by refinancing its medium term notes (MTNs) and loans in the past few months. We think that there would likely be more of these cost saving initiatives to come, especially for its debts due this year, which may be replaced by debts with much lower interest rates.

Since its listing, CRT has made several astute acquisitions and some of these have had their values increased rather significantly.
We think management would dispose properties at prices which it feels have less rental upside going forward or fairly attractive to sell them at. However, we believe that any proceeds from the sale of any of these malls are likely to be immediately invested into another mall, as well as its asset enhancement initiative (AEI) plans for the Torius and Feeeal Asahikawa malls.

On 26 Apr 2017, CRT announced that it has been approached in connection with a potential transaction which may or may not lead to an acquisition of all the issued units in CRT.
We understand that due diligence is currently being carried out and management would provide an update if there is any material development.

Going forward, we expect AEI plans as well as positive rental renewals from some of its malls like Torius and Feeeal Asahikawa to contribute positively to NPIs.
Cost savings from financing, internalisation and a superior hedge forex rate would also bump up DPU.
We lift our FY17F NPI by 5%, resulting in our DDM-based TP to rise to SGD1.00. However, as the share price is currently close to our TP, we have to downgrade our call to NEUTRAL.
Key risks are a depreciation of JPY and lowering retail sales.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2017-05-16

RHB Invest SGX Stock Analyst Report NEUTRAL Downgrade BUY 1.00 Up 0.960