STI : 3,038.71
Price Target : 12-Month S$ 1.02
Continues to deliver
• Improved results boosted by better operating cost management and slightly higher than expected revenue growth
• Rental reversion outlook for Mallage Shobu bright; acquisition drivers in place
• Maintain Buy and S$1.02 TP
Continues to beat forecast. CRT reported 2Q14 distribution income of JPY713m, 6% above forecast, translating to a DPU of 2.02Scts. This was achieved on a 1.2% higher than projected revenue of JPY1.287bn and lower than expected interest expense. NPI improved 2.4% on better operating cost management. Maiden DPU of 5.24Scts for the period 10 May 2013- 30 Jun 2014, is expected to be paid on 31 Mar 2014. Book closure date is 26 Feb 2014.
Better cost management and strong underlying performance. Portfolio occupancy continues to track close to 100% while lease renewals during the quarter, such as Ootoya and Evisu at Mallage Shobu were re-contracted at between 80% and 60% higher than previously. In addition, tenant sales in 2QFY14 continued to increase on a y-o-y basis. Aeon Town Moriya (ATM) and Aeon Town Suzuka (ATS) enjoyed 1-1.3% higher tenant sales while Mallage Shobu saw sales performing 7.5% better than last year. At Luz Shinsaibashi, anchor tenant H&M saw sales improving by 16% y-o-y.
Positive reversion outlook. We believe CRT will continue to enjoy improving performance, underpinned by the stronger macro outlook in Japan. We expect the trust would enjoy positive rental reversions with 25.7% of its leases due for renewal in Nov 2014. These are largely at Mallage Shobu. Of the 148 leases to be re-contracted, 38 are in the final stages of
negotiations with a potential 37-38% uplift over preceeding levels. This should provide the trust with strong organic growth.
Acquisition engine set to go. On the acquisition front, the trust is well placed to tap on acquisitions with a gearing of 41.8%, which will provide it with an additional debt headroomof JPY27.5bn (assuming 60% leverage) while recent raising of S$100m 3-year MTN has provided a ready cash hoard. The group had earlier reported that it had extended the ROFR for its pipeline of properties till 31 Mar 2013.
Buy, S$1.02 TP. We continue to like CRT as it is a pure Japan retail play. The stock is offering 12-month FY14 DPU yield of 7.8% or an estimated 8.7% yield for the period 10 May 2013- 30 June 2014. Maintain Buy.