FY14 DPU outperforms. Croesus Retail's (Croesus) FY14 revenue was in line with  estimates,  while  net property income  (NPI)  was  4.8% better than initially forecast  due to savings in property management and repair expenses despite an increase in utility  expenses,  as well as  extra  sales and  promotion  expenses  to  boost  store  traffic  at  Mallage  Shobu.  As a result,  income  available  for  distribution  for  FY14  was  JPY3.18b n, representing a full-year dividend of SGD8.98 cents, exceeding forecasts by 6.3%. This represents close to an annualized yield of 7.8%.

Rental revisions at Shobu on track.    Management has confirmed that rental  revisions  are  on  track  and  positive  rental  revi sions  range  from +3% to +300%,  depending on the  outlet  size. From our research during our  visit  to  the  sites  in  Japan,  we  estimate  that  55%  of  the  expiring leases  are  likely  to  be  replaced  with  new  tenants   while  25%  may  be renewals  by  existing  tenants.  Overall,  we  estimate  a  positive  rental revision  of  at  least  15%  for  the  148  expiring  lease s.  W e  also  expect management  to  bring  in  reputable  brands  like  American  Eagle,  or possibly H&M, with which it has a strong working relationship, to improve the traffic flow at Mallage Shobu.

Maintain BUY and SGD1.15 TP. FY14 was a good year for Croesus, for which we expect earnings to remain resilient and provide an 8% dividend yield  going  forward.  The  key  growth  drivers  are  rental  revisions  at Mallage Shobu and potential acquisitions of more retail malls in Japan. The REIT incorporated  Durian TMK in June, and we think there is a high probability  that  there  may  be  an  acquisition  in  the  near  future,  judging from past patterns. Management has guided that any acquisitions would be  neutral/ield  accretive  to  Croesus.  We  continue  to  like  the  REIT. Maintain BUY and SGD1.15 TP.

 

Source: OSK-DMG