Excerpts from analysts' report.
KGI Fraser analyst: Wong Hong Wei
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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.
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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.
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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.
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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%.