CRT – DBSV

Executing its growth strategy

  • Acquires One’s Mall in Greater Tokyo for JPY11bn, a 5% discount to the independent market valuation
  • Acquisition partially funded by recent S$72.2m share placement
  • Maintain BUY, TP of S$1.10

Further expansion into Greater Tokyo. CRT announced the acquisition of One’s Mall for JPY11bn (S$132.5m) which represents (1) a 5.2% discount to the JPY11.6bn (S$139.8m) independent valuation, and (2) an initial NPI yield of 5.8%. One’s Mall is a freehold, large-scale retail complex (NLA of 52,844 sqm) located in Inage Ward within Chiba City, which is 40km southeast of Tokyo. As of end- Jun14, occupancy and WALE stood at 99.4% and 5.8 years respectively. The mall is located next to a major arterial road and is in an area served by three major train lines. It also provides exposure to a trade area which has a higher population/household growth and larger proportion of high income households than the national and prefecture average. The mall’s key tenants include Daiei, Central Sports, Toys ‘R’ Us, Nitori and Sports DEPO.

0.1%/0.8% uplifts to FY15/16F DPU. The acquisition of One’s Mall will be funded via (1) recently completed S$72.2m share placement – 78.9m shares at an issue price of S$0.915 per share, (2) new Japanese local bank debt of JPY6,150m (includes JPY650m payment of consumption tax which will be repaid within 12 months from completion of the acquisition) at an interest rate of 1.29%, and (3) JPY500m from the S$100m worth of bonds issued in Jan14. Post-acquisition, total NLA will increase 27% to 251,013 sqm with exposure to the top ten tenants dropping from 71% of NLA to 69%. WALE will also decline to 9.1 years from 10 years. In addition, we estimate 0.1%/0.8% uplifts to FY15/16F DPU with gearing increasing marginally to 52% (51.2% including JPY650m consumption tax) from 51.7% at end-FY14.

Maintain BUY. We continue to like CRT for its exposure to the Japanese retail market and the prospects of further cap rate compression. Maintain BUY with TP of S$1.10.

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CRT – CIMB

Executing acquisition growth

CRT’s purchase is not surprising, although the property was not part of its ROFR assets. This demonstrates management’s ability to source for assets in an increasingly competitive environment. The property would expand AUM by 16.6% and NLA by 26.7%. The initial NPI yield is 5.8%, lower than its existing portfolio NPI yield but we believe there is scope for further upside should the property undergo an AEI. The purchase is funded by a combination of debt and equity, and would initially raise DPU by 1.5%. Maintain Add and DDM-based target price at S$1.16. CRT offers investors 7.9-8% FY15-16 DPU yield.

What Happened

CRT has proposed to acquire One’s Mall in the Chiba prefecture for ¥11bn from a private fund. The acquisition price is below the independent valuation of ¥11.6bn, translating to an NPI yield of 5.8%. The mall, with 52,844 sq m of NLA is 99.4% occupied, with a WALE of 5.8 years. There are a total of 52 tenants but anchors such as Daiei, Central Sports, Toys’R’Us, Nitori and Sports DEPO take up c.80% of NLA. The deal will be funded by a combination of new yen local bank debt, proceeds from its MTN programme as well as a private placement of 78.9m new units, priced at S$0.915/unit (c.S$72.2m), a 3.2% discount to the adjusted 1-day VWAP of S$0.9455 (after subtracting the cumulative distributions).

What We Think

The purchase continues to enhance the portfolio with a 16.6% increase in AUM to ¥81.47bn and 26.7% expansion in total NLA. In addition, the shorter property lease profile has reduced portfolio WALE to 9.1 years, thus enabling the trust to better leverage the inflationary prospects in the country. The property is well located, close to three train lines and is situated in a densely populated area. In terms of earnings impact, we reckon, at an initial 5.8% yield, the acquisition would lift our DPU estimates by a marginal 1.5% on a fully-diluted basis and raise book NAV by 0.1%. However, we believe there is potential for upside should the asset undergo an asset enhancement initiative given the present large anchor tenant component. Gearing will dip slightly to 50.5% post-acquisition and equity offering.

What You Should Do

We continue to like CRT for its pure play exposure to the Japan retail real estate market through its capital-efficient platform. Prospects of strong organic growth and cap rate compression underpinning asset values remain catalysts for the stock.

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CRT – OSK DMG

Expanding Its Presence In Japan

Croesus proposes to acquire One’s Mall in Chiba, Japan for SGD132.5m with a NLA area of around 52,000 sqm and a 99.4% occupancy rate. It will fund this acquisition partly via the issuance of 78.9m new private placement shares at SGD0.89-SGD0.92 a share, raising around SGD71m and the rest by local and Japanese debt. With this, gearing drops to 50% from 52% while DPU rises marginally to SGD0.09 from SGD0.0898. Maintain BUY with SGD1.15 TP.

  • Private placement at SGD0.89-0.92/share. Croesus Retail Trust (Croesus) will partially fund this acquisition via a private placement of around 78.9m new shares at SGD0.89-0.92 per share, which will raise between SGD70.2m and SGD72.6m. It represents a 2.7%-5.9% discount to the adjusted volume weighted average price (VWAP) of SGD0.945 per share on 1 Sept (after deducting SGD5.4 cents from 2H14 declared dividend and advanced distribution). In addition, about SGD74.1m will be raised from new Japanese local debt (interest rate of 1.3% per annum) and the remaining SGD6m will be tapped from the existing local medium term note (MTN) programme (interest rate of 3.8% per annum).
  • Large-scale retail shopping complex. One’s Mall is a freehold, largescale retail shopping complex with 52 tenants across a NLA of more than 52,000 sqm and a weighted average lease expiry (WALE) of 5.8 years. Opened in 2000, it is one of the largest retail facilities in Chiba Prefecture with a 99.4% occupancy rate. The property is situated in Inage Ward, one of the six wards in Chiba City, located within a suburban residential area with high population density. With 1,534 car park lots and a frontage along the National Road Route 16, a major arterial road, it provides visibility and easy accessibility to customers with cars.
  • Maintain BUY with a SGD1.15 TP. We believe that this proposed acquisition is positive and in line with management’s strategy for Croesus, as it is marginally yield accretive (+0.002%), despite the fact that new shares are being placed out. Gearing drops to 50% from 52%, giving it more debt headroom for potential acquisitions down the road. Lastly, it allows the company to further expand its asset base and ride on any potential tightening of capitalisation rates. Maintain BUY with a SGD1.15 TP.
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