• 3Q14 revenue of JPY 1,391mil demonstrates stability and reliability of management’s forecast
• Highly Attractive Market Distribution Yields, 9.2%
• Stable Performance in Core Assets; stable recurring income stream
• Poised for more growth; thorough acquisition of more retail properties and growth in property income of current assets
• Maintain "BUY”, with a TP of S$1.12 based on 10% discount to RNAV of S$1.24.

What happened?

CRT reported 3Q14 revenue of JPY 1,391mil, bringing YTD revenue up to JPY 4,677mil. Compared to the CRT-management’s forecast of JPY 1,341mil, 3Q14 revenue was 3.7% higher. CRT achieved 3Q14 Net Property Income of JPY 933mil, which was 12.3% higher than management forecast. This stellar results were due largely to better than expected tenant sales at Mallage Shobu, the biggest mall within the portfolio. 3Q14 PATMI stands at JPY 617mil, with YTD PATMI at JPY 2,961mil.

How we view this

Previously, we initiate coverage of CRT estimating FY2014 revenue of JPY 4,907mil. Due to lack of earnings visibility, we have essentially discounted the performance of the two new acquisitions, NIS Wave I and Luz Omori. However, CRT largely delivered on their promise/forecast thus far. YTD revenue has exceeded our forecast. We believe that current quarter’s sturdy performance is not an anomaly and would spill over to the 2 new assets. Management has also mentioned that the new acquisition will contribute to the bottom line in 4Q14. Consequently, we have updated our earnings forecast, expected dividend and valuation accordingly.

While the outperformance of revenue is attributed to the better than expected tenant sales at Mallage Shobu, majority of the tenant renewal exercise will commenced in November 2014. The double digit rental rate increase for new tenant leases continue to provide upside to its FY2015 earnings performance.

Investment Action

We are more optimistic of CRT’s operational performance and revise our earnings estimate and dividend projection. We maintain a Buy call due to 1) an expected above-market distribution yield of 9.2% 2) stable income-producing assets with strong real estate fundamentals 3) potential growth through acquisition pipeline. Including the recent acquisition of two retail assets, w e derive a RNAV of S$1.24 and a TP of S$1.12.

Source: Phillip Securities Research - 16 May 2014