Croesus Retail Trust - Steadily delivering


Strong results but slightly lower than expected
Revenue increased by 0.9% QoQ to JPY2.0b, with income available for distribution at a record high of JPY918.5m. 2.08c S cts DPU was declared for the quarter (1.7 S cts after adjusting for rights). Net profit was negative, however, mainly due to loss on derivative financial instruments. Although the results are strong, we were expecting a somewhat stronger revenue increase.

Expect CRT to grow further from Mallage Shoubu and Torius
Croesus Retail Trust (CRT) revealed that Mallage Shobu is still seeing new tenants, with new shops such as ‘any FAM’ and ‘Denver Premium’ opening during 1Q16. As the leases at the mall are on average structured with ~30% variable rents, CRT may post further increases in revenue over the holidays season in 2Q. In addition, we are expecting Torius to begin contributing from 2Q16 onwards, which will give a further boost to 2Q performance.

FX hedged out to 2017
CRT has extended the distribution hedge entirely. The hedge rates for FY16 and FY17 are at SGDJPY of 85.03 and 84.16 respectively.

Short-term blip in Croesus Tachikawa
Croesus Tachikawa reported a lower occupancy at 88.4% (prev: 100%) as a tenant moved out. However, this is temporary as CRT has found a replacement at the same rent, and is currently 100% occupied.

Double-edged sword from rising property valuations
Cap rates in Japan has been compressing, which results in rising property valuations. While CRT benefits from revaluation gains, new acquisitions may be more difficult. We reduce our long-term growth assumption to 0% (prev 0.5%) as a result.

Technical Analysis
Daily Chart
Maintain BUY on the high yield stock
We still see upsides to CRT given the high dividend yield (FY16F: ~9.4%) and stable profile. We increase our target price to 91c (prev: 87.5c) as we lower our market risk premium assumption from 7% to 5.5%, while we lower our long-term growth rates to 0%. (Read Report)

Read Related Report
1) Croesus Retail Trust - In a holding pattern for now by DBS Group Research, published on 12 November 2015

2) Croesus Retail Trust - Higher rental reversions at Mallage Shobu kicking in by Phillip Securities Research, published on 12 November 2015

3) Croesus Retail Trust - Torius Coming Only In 2QFY16 by RHB Research, published on 12 November 2015

4) Croesus Retail Trust - Inorganic growth drivers by CIMB Research, published on 11 November 2015

Source : KGI Fraser Research

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