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.