Excerpts from analysts' report.

KGI Fraser analyst: Wong Hong Wei

Croesus OneMallOne's Mall is one of the largest retail malls in Chiba, a city 40km southeast of Tokyo. It has 53 retail tenants across a sales area of around 53,000 sq m. It is easily accessible by three major train lines and a major arterial road of the Chiba prefecture. Photo: Company

Good set of results, but lower than expected

Revenues surged 24.7% YoY to JPY2.4b for 2QFY16, due to acquisitions of One’s Mall and Torius.

However, this is still lower than our expectations as Torius contributed only 2.5 months instead of the full quarter, and the NPI for Mallage Shobu fell slightly short.

While 2QFY16 DPU is slightly lower than expected at 1.79 S cts, this still implies an attractive 8.9% annualized yield.

 

Maintain BUY

We like CRT due to the high dividend yield (FY16F: ~9.2%), while the strong yen boosts the book value (and potential dividends) in SGD terms.


However, we decrease our TP to S$0.89 (from S$0.91) due to increasing dilution from issuing new shares while share price is lower, downward revision of assumptions at Mallage Shobu.



Plans for further AEI

Management revealed its intentions for asset enhancement at One’s Mall and Torius, and will inform the markets once the plans are concrete. For One’s Mall, management is in talks to refurbish 50% of the NLA that was previously occupied by Daiei. Meanwhile, professional consultants have been hired to change the market image of Torius. Given the success in remaking Mallage Shobu, we are positive on the potential developments at both properties.



WongHongWeiMaintain BUY

We like CRT due to the high dividend yield (FY16F: ~9.2%), while the strong yen boosts the book value (and potential dividends) in SGD terms.


- Wong Hong Wei (photo)

Explaining the surge in other income and property management expenses

While we expected an increase in other income and property management expense due to the acquisition of the two properties, the YoY surge was unusually large. Management explained that due to a special rent structure with a cinema tenant, JPY84.5m of the cinema’s income and JPY87m of the cinema’s expenses have to be added to Croesus Retail Trust’s (CRT) books.



Negative rates bodes well for CRT

The Bank of Japan cut interest rates below zero, in a surprise move. As a result, we think that further revaluation gains may be recorded due to compression of cap rates. Borrowing costs should also fall, leading to lower financing costs for new acquisitions.

Already, all-in cost of debt has fallen to 1.9% in 2QFY16 from 2.02% in 4QFY15. However, we are slightly disappointed that management is unlikely to take advantage of this to increase gearing from the current level, so as to be in-line with MAS rules for REITs to keep gearing below 45%.

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