Croesus Retail Trust

DBS GROUP RESEARCH, Sept 9

CROESUS Retail Trust (CRT) announced the acquisition of One's Mall for 11 billion yen (S$131 million) which represents a 5.2 per cent discount to the 11.6 billion yen independent valuation, and an initial NPI yield of 5.8 per cent.

One's Mall is a freehold, large-scale retail complex with a net lettable area of 52,844 square metres located in Inage Ward within Chiba City, which is 40 km south-east of Tokyo.

As of end-June 2014, occupancy and weighted average lease expiry (WALE) stood at 99.4 per cent 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.

The acquisition of One's Mall will be funded via the recently completed S$72.2 million share placement - 78.9 million shares at an issue price of S$0.915 per share, new Japanese local bank debt of 6.15 billion yen (includes 650 million yen payment of consumption tax which will be repaid within 12 months from completion of the acquisition) at an interest rate of 1.29 per cent, and 500 million yen from the S$100 million worth of bonds issued in January 2014.

Post-acquisition, total NLA will increase 27 per cent to 251,013 square metres with exposure to the top ten tenants dropping from 71 per cent of NLA to 69 per cent. WALE will also decline to 9.1 years from 10 years.

In addition, we estimate 0.1 per cent/0.8 per cent uplifts to FY2015/2016F DPU with gearing increasing marginally to 52 per cent (51.2 per cent including 650 million yen consumption tax) from 51.7 per cent at end-FY2014.

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

BUY