Croesus Retail Trust

Transcription

Singapore Company Focus
Refer to important disclosures at the end of this report
Bloomberg: CRT SP | Reuters: CROE.SI
DBS Group Research . Equity
28 Jun 2013
BUY S$0.945 STI : 3,104.40
Stability and growth
(Initiating Coverage)
Price Target : 12-Month S$ 1.14
Reason for Report : Initiating coverage
Potential Catalyst: New acquisitions, organic rental reversion growth
Analyst
LOCK Mun Yee +65 6398 7972
munyee@dbsvickers.com
Price Relative
Relative Index
1.3
209
1.3
1.2
189
1.2
169
1.1
1.1
149
1.0
129
1.0
0.9
109
0.9
0.8
May-13
89
Relative STI INDEX (RHS)
Forecasts and Valuation
FY Jun (JPY m)
Gross Revenue
Net Property Inc
Total Return
Distribution Inc
EPU (S cts)
EPU Gth (%)
DPU (S cts)
DPU Gth (%)
NAV per shr (S cts)
PE (X)
Distribution Yield (%)
P/NAV (x)
Aggregate Leverage (%)
ROAE (%)
2014F
2015F
5,027
3,195
3,225
2,516
11.7
nm
7.6
nm
95
8.1
8.0
1.0
43.1
12.5
5,100
3,347
2,080
2,623
6.3
(46)
7.8
3
93
15.1
8.2
1.0
43.2
6.7
ICB Industry : Financials
ICB Sector: Real Estate Investment Trusts
Principal Business: CRT is a business trust investing in retail real
estate in the Asia Pacific region. Current portfolio comprises 4 retail
malls in Japan.
Source of all data: Company, DBS Vickers, Bloomberg Finance L.P
www.dbsvickers.com
sa: TW
Stable portfolio with good rental reversion
growth prospects
Visible inorganic growth opportunities to drive
trust expansion
Initiate with Buy call and TP of S$1.14
First Japan retail trust. Croesus Retail Trust (CRT) offers
investors a unique exposure to the Japan retail real estate sector
through a capital efficient vehicle with an initial portfolio of
stable and growth-oriented assets. In addition to income
stability, as a Singapore listed business trust, this platform offers
NAV growth potential through CRT’s ability to undertake lower
risk non-speculative development activities and diversify into
higher growth overseas markets in the medium term as well as
prospects of asset reflation in Japan in the longer run.
Singapore Research Team +65 6398 7963
research@dbsvickers.com
Croesus Retail Trust (LHS)
•
•
Derek TAN +65 6398 7966
derektan@dbsvickers.com
S$
•
Stable earnings with inorganic growth prospects. CRT’s
portfolio is well located near transport conveniences in
prefectures that are enjoying expanding per capita GDP. The
trust enjoys high income certainty with a long WALE of 11.3
years and derives 44% of rental income from long term master
leases with AEON. CRT commands good flexibility in tenant
management to optimize tenant mix and property returns as
61.5% of leases are on fixed term lease basis and 49.4% of
income comes with an in-built growth engine through its
variable rent component. This puts CRT in a strong position
when renewing 26.3% of its rental income over FY14-FY15.
CRT has a visible acquisition pipeline of assets, 4 currently, in
Japan and a right to negotiate to buy 2 assets in Shanghai and
Shenyang from its strategic partner Marubeni in the medium
term. When fully purchased, this could more than double CRT’s
portfolio NLA. With a gearing of 43.7% vs a 60% ceiling, CRT is
estimated to have debt headroom of JPY23b to fund these
purchases.
TP at S$1.14. CRT is currently trading at 8.0-8.2% FY14 and
FY15 DPU yield. Our DCF-based TP of S$1.14 offers a total
return of c28%. Our numbers have not factored in any
accretion from new acquisitions. Key risks include the adverse
impact of a global slowdown on economic activity and
consumption in Japan. Socio-economic and political changes
could also affect the competitive landscape and environment in
which CRT operates.
At A Glance
Issued Capital (m shrs)
Mkt. Cap (S$m/US$m)
Major Shareholders
AR Capital Pte Ltd (%)
Target Asset Management (%)
Free Float (%)
Avg. Daily Vol.(‘000)
425
402 / 315
7.3
5.4
87.4
10,005
Company Focus
SWOT Analysis
Strengths
• Exposure to the stable Japanese market. CRT has a well
located portfolio that enjoys high occupancy levels. With a
long WALE of 11.3 years, income visibility is also extended.
• Capable management team that is led by a strong
management with good track record in property and fund
management.
• Efficient payout ratio as a business trust, thus enabling CRT
to minimise cash traps and pay higher distributions than JREITs
Weakness
• Capital intensive industry. Property investment is a
capital intensive industry. As the Trust continues to grow
its portfolio, balance sheet and capital management is
one of the key strategies for management.
• Non-developer Sponsor backed. In periods of intense
competition for assets, absence of a developer Sponsor
could mean CRT may find it increasingly difficult to
obtain yield accretive assets.
• Capacity to undertake development activities, with a
voluntary cap of 20% of portfolio value will enable CRT to
enjoy NAV growth when completed
• Strong strategic partners through Marubeni and Daiwa
House Group which would position the trust to benefit
from their extensive networks as well as enjoy rights to
negotiate for certain pipeline properties
Opportunities
• Structural changes in Japanese demographics
consumption trends such as aging populations, would
mean that retailers would need to evolve to grow. This
provides the trust with opportunities in optimising its
growth drivers within this operating environment.
• Change in law concerning large scale shopping centres had
resulted in large supply of new developments as well as
opening potential for asset enhancement opportunities within
the existing stock. This will likely enable landlords to be able to
generate positive returns when evaluating these opportunities
Source: DBS Vickers
Page 2
Threats
• Key risks include country and sector risks. Given CRT’s
Singapore domicile but Japan asset base, any change in
social, political, regulatory (incl taxation) and economic
landscape in Japan, Singapore and other countries
which CRT may operate in would affect CRT.
Company Focus
Trust Structure
has mandated a target 20% development ceiling (of the value
of the properties comprising CRT’s portfolio).
Croesus Retail Trust is a business trust incorporated in
Singapore under the Business Trust Act. It is established to
invest in a diversified portfolio of pre-dominantly retail real
estate or real estate-related assets located in the Asia Pacific
region.
Croesus Retail Asset Management Pte Ltd is the TrusteeManager of CRT. It is ultimately owned by Croesus Partners
(80%), Daiwa House (10%) and Marubeni (10%).
The initial geographic focus is Japan to create a core portfolio
of stable income generating assets. This would serve as a
foundation for CRT to pursue development and acquisition
opportunities in the Asia Pacific region including Japan to
generate long term capital value and returns. The trust deed
Tozai Asset Management is the Japan Asset Manager. It is a
fully licensed independent asset management company based
in Tokyo.
Structure of Croesus Retail Trust
Evertrust Asset
Management Pte.
Ltd.
Unitholders
Holding of Units
Croesus Retail Asset
Management Pte. Ltd. (as
trustee-manager) (5)
Distributions
Singapore
Acts on behalf of
Unitholders / Provision of
management services
CRT
Shareholder’s
loans (1)
Fees
100%
100%
Croesus TMK Holding Pte.,
Ltd. (Hold Co 1)
Mangosteen TMK Holding Pte
Ltd (Hold Co 2) (3)
Japan
49% preferred
equity
Japan Asset
Manager
Asset
management
services
[Croesus TMK]
(4)
51% preferred
equity
Net property
income
Beneficial
Ownership
[Hold Co 2 – Tokyo branch(2)]
Property management
services
Properties
Property Managers
Property management fees
1)
The Trustee-Manager will extend loans to the Tokyo branch of Hold Co 2, as may be agreed between the Trustee-Manager and the Tokyo branch
of Hold Co 2 to finance the Tokyo branch’s subscription of preferred equity in the Croesus TMK, on the terms and subject to the conditions contained in
loan agreements entered into by the Tokyo branch of Hold Co 2 and the Trustee-Manager. (2)
Certain criteria must be met before a TMK may treat its
dividend distribution as tax deductible. One of the criteria requires 50% or more of the preferred equity to be offered in Japan. The use of the Tokyo branch
to hold 51% of the preferred equity in TMK is to satisfy this criterion. (3)
Hold Co 2 is Mangosteen TMK Holding Pte. Ltd. Hold Co 2 has a Tokyo
branch, which will on the Listing Date hold 51% of the preferred equities in the Croesus TMK. The trust beneficiary interests (TBI) in the Properties will be
held by the Croesus TMK. Hold Co 1 will on the Listing Date hold 49% of the remaining preferred equities in the Croesus TMK.(4)
The Croesus TMK is
Mangosteen TMK, which holds the TBI in Aeon Town Moriya, Aeon Town Suzuka, Luz Shinsaibashi and Mallage Shobu. (5) Croesus Croesus Retail Asset
Management Pte Ltd. has a wholly-owned subsidiary in Japan which employs a few employees in Japan to provide administrative services for the CRT Group.
Source: Company, DBS Vickers
Page 3
Company Focus
Management team
Executive officers in the Trustee-Manager of CRT include Chief
Executive Officer (CEO) Mr Jim Chang Cheng-Wen, Chief
Financial Officer (CFO) Mr Hidenori Asai, Chief Investment
Officer Mr Kiyoshi Sato, Chief Asset Management Officer Mr
Shunji Miyazaki, Deputy Chief Financial Officer Mr Tetsuo Ito
and Ms Hanako Tokunaga in charge of Investor Relations,
Corporate Communications, Marketing and Administration.
The management team has an extensive track record in
sourcing, acquiring and financing retail real estate assets in the
Asia-Pacific region. Their industry knowledge, relationships and
access to market information is expected to provide a
competitive advantage with respect to identifying, evaluating
and acquiring retail real estate assets in the Asia Pacific region.
Key Management Team
Name
Position
Experience
Mr Jim Chang Cheng-Wen
Chief Executive Officer and
Please see below under “Board of Directors”
Executive Director
Mr Hidenori Asai
Mr Shunji Miyazaki
Chief Financial Officer
Chief Asset Management
Officer
Page 4
Mr Asai has at least 12 years of experience in the real estate industry, including 5 years
as Deputy CEO of Mitsubishi Corp.-UBS Reality, Asset Manager of Japan Retail Fund (JREIT) from 2000-2005, and 2 years as Director of Diamond Realty Management, Asset
Manager of private equity real estate funds specialized in retail and residential
properties from 2005-2007. Mr Asai has 16 years of experience in corporate finance
with First National Bank of Chicago (now JP Morgan Chase) from 1974-1990. From
1991 to 1996, Mr Asai was a partner with Yasuda Fire Brinson Partner Co. Ltd. He was
a Director with SG Warburg Securities Co. Ltd from 1996-1997 and was a Director with
UBS Global Asset Management Co. Ltd from 1998-1999. He speaks fluent English and
Japanese. Mr Asai joined the Croesus Group in Jun 2007 as Chief Financial Officer /
Chief Operating Officer. Mr Asai confirms that he is adequately familiar with the
business operations, accounting systems and policies of CRT despite being employed
with the Trustee-Manager for less than six months on the basis that he has been with
the Croesus Group since 2007 and has been actively involved in the various aspects
relating to the origination and establishment of CRT and all finance, finance reporting,
compliance and risk management functions of CRT. Mr Asai graduated from Keio
University, Tokyo, in 1971 with a Bachelor of Arts. He attended the business
administration program from Keio Business School, Tokyo.
Mr Miyazaki has 12 years of banking and securitisation experience as manager with
Mitsui Trust Bank (now Sumitomo Mitsui Trust Bank) from 1986-1998. He has 13 years
of real estate experience and was Senior Managing Director / Chief Planning & Financial
Officer of Consonant Investment Management Co., Ltd (formerly known as LCP REIT
Advisors Co., Ltd) from 2010-2011. From 2005-2007, he was the CEO of Asset
Management for a J-REIT, LCP Investment Corporation (currently Invincible Investment
Corporation) and was with the Consonant Investment Management Co., Ltd (formerly
known as LCP REIT Advisors Co., Ltd) from 2004-2010. From 1998-2004, he was the
Senior Fund Manager at Chuo Mitsui Asset Management Co., Ltd in charge of
investments in real estate securitized products including J-REITs. He speaks fluent
Japanese and basic English. Mr Miyazaki graduated from Hiroshima University in 1986
with a Bachelor of Economics. Mr Miyazaki joined the Croesus Group in October 2011.
Company Focus
Key Management Team (continued)
Name
Position
Experience
Mr Kiyoshi Sato
Chief Investment Officer
Mr Sato has 18 years of corporate finance experience, including 12 years with the
Long-Term Credit Bank of Japan (now Shinsei Bank) as manager from 1987-1999, 2
years as Head of Syndicated Finance of HSBC Tokyo from 1999 to 2001 and 4 years as
Director at IBK / Relationship Management of Merrill Lynch Japan from 2001 to 2005.
He has 7 years of real estate experience, including 2 years as Director of an Investment
Advisory Company, RISA Partners from 2005-2007, and 2 years as head of CMBS
origination of Nikko Citigroup Securities from 2007-2009. During the two years at RISA
Partners, a real estate asset management company associated with Grove International
Plc., Mr Kiyoshi Sato was responsible for sourcing and underwriting more than 100 real
estate investment opportunities, mostly derived from non-performing loan disposals by
Japanese banks, as deputy head of Investment Banking Department and played a
leading role to create a real estate portfolio of approximately US$2b. During the two
years at Nikko Citigroup Securities, being the head of CMBS origination team, Mr Sato
originated more than US$3b of non-recourse loans / bonds backed by Japanese real
estate, including hotels, retail malls, offices and residential assets. Mr Sato was General
Manager, Corporate Finance division of Capital Partners Securities Co., Ltd from 20092011, where he acted as advisor to several real estate funds for their capital raising
efforts and restructuring of their present capital structure to resolve the issues of each
client fund. He speaks fluent English and Japanese. Mr Sato graduated from Waseda
University in 1987 with a Bachelor of Economics. He holds a Master of Business
Administration and Diplome de l’ESSEC from Ecole Superieure des Sciences Economics
et Commerciales. Mr Sato joined the Croesus Group in November 2011.
Mr Tetsuo Ito
Deputy Chief Financial
Mr. Ito has 15 years of financing, accounting and corporate audit experience. Mr. Ito
started his career at KPMG Japan in 1997 and performed financial audits and due
diligence projects of major Japanese companies, mainly in the financial industry, as well
as financial and corporate advisory services in various industries. During his career at
KPMG Japan from 1997-2004, he dealt with a merger of two Japanese listed insurance
companies having JPY6tr of total assets, as well as an acquisition of a Japanese
insurance company by a US financial institution having JPY 2 trillion of total assets.
From 2004-2005, he was with KPMG LLP New York and provided various audit and
accounting services to US and Japanese companies. From 2006-2012, Mr Ito was a
representative director of the Phoenix Accounting Group Inc. Mr. Ito has served as
Deputy CFO for Croesus Japan since July 2007. Mr. Ito graduated from the University
of Tokyo in 1998 with a Bachelor of Arts in Economics. Mr Ito is a Japan Certified
Public Accountant with the Japanese Institute of Certified Public Accountants, a Japan
Certified Tax Accountant with the Tokyo Certified Public Tax Accountants’ Association
and a Certified Public Accountant with the Institute of Certified Public Accountants of
Singapore.
Officer
Ms Hanako Tokunaga
Investor Relations, Corporate Ms Tokunaga is a US CPA and has nine years of real estate experience, including two
years as Investment Associate of Citi Property Investors from 2008-2010 and 5 years as
Vice President / Manager of Duff & Phelps / Standard & Poor’s from 2003-2008. She
and Administration
spent three years as Senior Auditor of Ernst & Young from 1998-2001. Ms Tokunaga
speaks fluent English and Japanese. Ms Tokunaga graduated from Cornell University in
1997 with a Bachelor of Science in Biology. She holds a Master of Accounting from the
University of Southern California and a Master of Science in Real Estate from New York
University. Ms Tokunaga is a Certified Public Accountant with the American Institute of
Certified Public Accountants. Ms Tokunaga joined the Croesus Group in February 2010.
Communications, Marketing
Source: Trustee-Manager
Page 5
Company Focus
Board of Directors
Name
Mr David Lim Teck Leong
Mr Jim Chang Cheng-Wan
Position
Experience
Chairman and Independent Mr Lim is a director of several companies publicly listed on the SGX-ST. He is a nonexecutive director of Z-Obee Holdings Ltd, which is dual listed on the Singapore
Director
Exchange Securities Trading Limited and the Hong Kong Stock Exchange and also also
lists its Taiwan Depository Receipts on the Taiwan Stock Exchange Corporation. He sits
on the boards of private companies in Singapore, Indonesia and Thailand in nonexecutive and independent capacities and on the executive committees of several
private equity investments. Mr Lim is the founder of David Lim & Partners LLP and has
been the Managing Partner since 1990. He began his career at Rodyk & Davidson in
1982 with a focus in commercial litigation, corporate finance, restructuring and
mergers & acquisitions up till 1989. Mr Lim previously lectured at the Institute of
Banking & Finance from 1999 to 2000 and tutored at the Faculty of Law, National
University of Singapore from 1992 to 1994. He was a council member of the Law
Society of Singapore. Mr Lim is an honorary legal adviser (for David Lim & Partners LLP)
of the Singapore Physiotherapy Association. He graduated from King’s College London
in 1980 with a Bachelor of Laws and obtained his professional qualification as a
barrister from Gray’s Inn, London in 1981.
Chief Executive Officer and Mr Chang is the Chairman and co-founder of Croesus Merchants in February 2010
and Croesus International Inc in August 2004 with over 10 years of Asian real estate
experience. He is a Taiwanese citizen, currently residing in Tokyo, Japan. He is fluent in
Japanese, English, Mandarin, Taiwanese and Hokkien. Mr Chang began his career in
1990 negotiating sea port control rights, airline landing rights and strategic
investments with foreign governments on behalf of the Evergreen Group. He rose to
become Managing Director of the Group’s investment activities in 2001. From 19972005, Mr Chang led in the investments and management of Evergreen’s interests in
real estate, transportation and infrastructure across Asia with extensive experience in
managing Evergreen’s Asian hospitality, office and logistics real estate businesses. He
has been on the Advisory Board or an Advisor to leading Asian institutions and
organizations, notably Taiwan High Speed Rail Corporation (2004-2010) and
Evergreen (2007-2011) From 2007-2010, he managed a US$500m residential real
estate fund in Japan for Citi Property Investors. He partnered with and advised world
class players on their acquisition strategy for two real estate portfolios totalling over
US$2b of Asian hospitality assets in 2006. Mr Chang has a Bachelor of Arts in
International Studies from Temple University (Pennsylvania, USA).
Executive Director
Mr Eng Meng Leong
Independent Director,
Chairman of Audit and
Risk Committee
Page 6
Mr Eng is currently a non-executive director of HSR Global Ltd, Libra Group Ltd and
Kreuz Holdings Ltd. Mr Eng was previously an executive director with KPMG Tax
Services Pte. Ltd and also served as the head of financial services in the tax practice. He
joined KPMG Tax from 1984-2009 and has been involved with taxation for 25 years.
His experience in taxation covers Singapore, Malaysia, Hong Kong and the United
Kingdom. The taxation work he has undertaken includes compliance, advisory, due
diligence reviews and structuring/planning for mergers, acquisitions, takeovers, IPOs,
in-bound and out-bound investments/projects and corporate finance matters. He has
also been involved in investigations, reviews/implementations of compliance systems
and making representations to the authorities for tax incentives and advance rulings.
Mr Eng worked in London for about 9 years prior to joining KPMG in Singapore. Mr
Eng is a consultant for the Kong Siang group of companies. He was admitted in 1982
as an associate member of the Institute for Chartered Accountants of England and
Wales and is a member of the Institute of Certified Public Accountants of Singapore
and an Accredited Tax Advisor of the Singapore Institute of Accredited Tax
Professionals Ltd. He completed a Foundation Accountancy Course at South Bank
Polytechnic, London, United Kingdom in 1975.
Company Focus
Board of Directors (continued)
Name
Position
Experience
Mr Quah Ban Huat
Independent Director and
Mr Quah is currently a non-executive director of AP Oil International Ltd, Primeur
Holdings Pte. Ltd., Primeur Cellars Pte. Ltd. and Ennea Resources Pte. Ltd. Heis also the
founder and President of PRYME (Potential Realised in Youth through Mentoring and
Education), a charitable organisation for less privileged children. From 2006-2011, he
was the Chief Financial Officer for Rickmers Trust Management Pte. Ltd., trusteemanager of Rickmers Maritime and was responsible for finance, accounting, investor
relations and capital markets. Mr Quah was involved in the IPO and successfully listed
Rickmers Maritime on the SGX in 2007 and also spent over a year leading and
completing its creditor restructuring. Prior to this, Mr Quah has held various key
finance positions including regional Business Area Controller at Deutsche Bank from
1997-2000, Group Finance Director of the IMC Group from 2000, which holds,
among others, interest in transportation, real estate and natural resources and Chief
Financial Officer of City Gas Pte. Ltd from 2005-2006. Mr Quah has more than 20
years of experience in investments, finance and accounting, including fund raising,
listing and initial public offerings, debt financing, restructuring and tax planning. He is
a member of the Institute of Chartered Accountants in England and Wales and a
fellow member of the Association of Chartered Certified Accountants.
member of the Audit and
Risk Committee
Mr Yong Chao Hsien Jeremy Non-Executive NonIndependent Director
Mr Yong is currently a director of Croesus Group Pte. Ltd., Croesus Merchants
International Pte. Ltd., Croesus Partners Pte. Ltd. and Evertrust Asset Management Pte.
Ltd. He is a director of Jael Capital Ltd, a company incorporated in the British Virgin
Islands. Mr Yong is the group managing director of, and co-founded Croesus
Merchants in February 2010. He oversees and is responsible for all corporate
operations and strategic development of the real estate business of Croesus Merchants
International Pte. Ltd. He is responsible for the development and listing preparation of
CRT, including sourcing, evaluating and negotiating acquisition terms and conditions
for retail assets suitable for the initial and pipeline portfolio of CRT. He will oversee and
advise the designated management team of the Trustee-Manager and all advisor
relationships in the listing of CRT. From 2002-2009, Mr Yong was the managing
director and co-founder of Jael Capital Ltd, a privately owned investment vehicle,
where he oversaw and was responsible for managing the company’s investment
strategy and portfolio in equities, global markets, foreign exchange and real estate.
From 2000-2001, Mr Yong was the managing director of ICG Asia (715.HK) and ICG
Japan. ICG Asia was a private equity technology investment company listed on the
Stock Exchange of Hong Kong. From 1996-2000, Mr. Yong was a private equity
investment professional and prior to that from 1994-1996, he was a banker at JP
Morgan Singapore. Mr Yong graduated from the London School of Economics, U.K. in
1991 with a Bachelor of Science (Hons) in Industrial and Business Economics.
Page 7
Company Focus
Organisation Structure of the Trustee-Manager
Board of Directors
Mr David Lim Teck Leong (Chairman and Independent Director)
Audit and Risk Committee
Mr Jim Chang Cheng-Wen (Executive Director)
Chairman: Mr Eng Meng Leong
Member: Mr Quah Ban Huat
Mr Eng Meng Leong (Independent Director)
Member: Mr David Lim Teck Leong
Mr Quah Ban Huat (Independent Director)
Mr Yong Chao Hsien Jeremy (Non-Executive Director)
Chief Executive Officer
Mr Jim Chang Cheng-Wen
Chief Asset
Management Officer
Chief Financial
Officer
Chief Investment
Officer
Mr Shunji Miyazaki
Mr Hidenori Asai
Mr Kiyoshi
Sato
Deputy Chief
Financial Officer
Investor Relations
Manager and Financial
Controller
Mr Tetsuo Ito
Ms Hanako Tokunaga
Page 8
Company Focus
Ownership Structure of Trustee Manager
The Trustee-Manager, Croesus Retail Asset Management Pte
Ltd, is owned by Evertrust Asset Management Pte Ltd, which in
turn is 80% held by Croesus Partners (a JV between the
Sponsor and JM Capital), 10% by Marubeni and the remaining
10% by Daiwa House.
Sponsor
The Sponsor of CRT is Croesus Merchants International Pte Ltd.
It is part of the Croesus Group which commenced operations
in 2005. The Croesus Group started in Japan and now has
spread its footprint into China, Singapore and Taiwan. Croesus
Group is an independent Asian based private investment firm
that has been involved in real estate management and
strategic business advisory since its formation. Between 20072010, the Croesus Group managed a US$500m residential real
estate fund in Japan for Citi Property Investors. The group also
advised on various real estate, transportation, infrastructure
and hotel investments in Asia.
The Sponsor is beneficially owned by Mr Jim Chang ChengWen (51%) and Mr Yong Chao Hsien Jeremy (49%). Both
have extensive experience in Asian and Japanese real estate
including corporate finance, private equity investments and
real estate as well as across various industries.
The Sponsor and JM Capital, a company wholly owned by Mr
Masaharu Kodaka, respectively own 80% and 20%
respectively of Croesus Partners. Mr Kodaka is highly
distinguished and respected in Japanese banking, corporate
and real estate circles. He spent almost 40 years at the Chuo
Mitsui Trust & Banking Co Ltd of Japan and has been involved
in the listing of no less than 7 J-REITs worth in excess of
JPY300b. The Trustee-Manager will be able to leverage on he
Sponsor’s and Mr Kodaka’s knowledge, experience and
relationships in Asia and Japan for the development of CRT.
The Strategic Partners
Daiwa House and Marubeni are strategic partners of Croesus
Retail Trust. To demonstrate the commitment of the strategic
partners, Daiwa House will contribute two completed retail
properties – AEON Moriya and AEON Suzuka to the initial
portfolio (22.5% of value) while Marubeni will contribute one
completed property – Luz Shinsaibashi (9.8% of portfolio
value). In addition, a voluntary ROFR will be provided by
Marubeni over any sale of its current and future predominantly
retail real estate assets located in the Asia Pacific region ex
Japan. The pipeline under the ROFR currently includes its
interests in two pre-dominantly retail development projects in
Shenhe, Shenyang and in Jiading, Shanghai. A voluntary ROFR
will also be provided by Daiwa House in respect of any sale of
its future pre-dominantly retail real estate assets located in the
Asia Pacific region. Daiwa House and Marubeni will own
indirectly 10% each in the Trustee-Manager.
Daiwa House is one of Japan’ leading housing companies,
retail property developers and real estate business
conglomerates. It was listed in 1959 on the Tokyo Stock
Exchange. As at Dec 2011, it has 77 branches and 10 factories
throughout Japan as well as operational footprints in China,
Taiwan, US and Australia. It has a wide range of businesses
from construction, renovation and property sales across single
family houses, rental housing, condominiums, existing homes
(renovations and real estate agencies), commercial facilities,
logistics and business corporate facilities, resorts, hotels and
sports facilities. The total investment of Daiwa House from
FY2008-2010 amounted to JPY462b of which JPY338b was
invested in Japan real estate and JPY20b and JPY34b for its
overseas business and merger and acquisition activities.
Marubeni is one of Japan’s largest general trading companies.
It was listed in 1950 on the Tokyo Stock Exchange. As at Dec
2011, Marubeni has 119 offices across 69 countries. As a
group, Marubeni is involved in the provision of a broad range
of products and services across various industries such as food
materials, food products, textiles, materials, pulp and paper,
chemicals, energy, metals and mineral resources,
transportation machinery and offshore trading. It is also
extensively involved in a wide range of real estate businesses
such as real estate management, development and
construction in Japan with a growing presence in China and
South East Asia. Since 2000, Marubeni has developed 15 retail
properties in Japan with 3 retail properties currently planned or
under construction in China.
Japan Asset Manager
Tozai Asset management Co Ltd is the Japan asset manager
for CRT. It is a fully-licensed independent asset management
firm registered to engage in the investment advisory business
and discretionary investment management business under the
FIEL. It has been appointed by the Croesus TMKs to ensure
effective and efficient management of their portfolio.
Tozai is an integrated real estate company specializing in the
origination, development and management of real estate
assets throughout Japan. It will be the sole real estate asset
management company providing investment and asset
management services to Croesus TMKs. It will also facilitate the
acquisition and disposition of real estate assets by the Croesus
Page 9
Company Focus
TMKs by acting on their behalf. Tozai strives to create value for
investors, partners and tenants of properties under its
management. It creates value through meticulous market
research, focused acquisition strategies, innovative financing
and solutions based asset management, enhancement and
repositioning. It takes a collaborative approach with tenants
using certain long term strategies to realize above market
occupancy and a reversion to market rental rates over time.
Tozai is incorporated in Japan and has a current paid up capital
of S$15.7m. It has built its asset management business in
Japan by turning challenges into opportunities and has
developed a reputation as one of Japan’s leading integrated
real estate companies. As at Apr 2012, it serves as asset
manager to over 25 SPVs (self originated and third party
mandates) with current total assets under management of over
US$3b. Since its establishment, Tozai has developed in-house
expertise in asset management, development, project
management, renovation, and refurbishment, due diligence,
financial structuring, branding, event planning and design as
well as a strong infrastructure including multi-lingual and
multi-currency financial reporting systems.
Structure of Ownership in Trustee-Manager, Croesus Retail Asset Management Pte Ltd
20%
Marubeni
Croesus Partners
Daiwa House
10%
JM Capital
Kabushiki Kaisha
(JM Capital)
Sponsor
80%
10%
80%
Evertrust Asset
Management Pte
Ltd
100%
Croesus Retail
Asset
Management Pte
Ltd
Management
Fees
Cr oesus Retail
T r ust
Management
Services
Structure of Japan Asset Manager and Property Managers
P r operties
AEON Town Moriya
AEON Town Suzuka
Luz Shinsaibashi
Mallage Shobu
Property Managers
AIM Create Co Ltd
AIM Create Co Ltd
Marubeni Community Co Ltd
Sojitz Realnet Corporation
Property Management
Fees
Property Management
Services
TBIs in respect of the
properties
Net Property Income
Ownership
Asset Management
Fees
Cr oesus Retail Trust
Croesus
TMKs
Tozai Asset Management
Pte Ltd
Asset Management
Services
Source for both charts: Trustee-Manager
Page 10
Japan Asset
Manager
Company Focus
Fee Structure
CRT fees are in line. The fee structure of CRT is similar with
that of other S-REITs / property trusts and includes (i) fees
payable to the Trustee-Manager (ii) fees payable to Japan Asset
Manager (iii) acquisition/divestment fees and (iv) development
and project management fees. Fees payable to the Japan Asset
Manager, Tozai Asset Management under the servicing and
administrative fee agreement, is deducted against the TrusteeManager fees. The Trustee-Manager has elected to receive
80% of the management Fee net of the Tozai Asset
Management Servicing fee in the form of units for FY14F and
FY15F.
Trustee-Manager Fee as a % of Total Property Value
Based on our estimates, CRT fees payable as a component of
total property values is at 0.8%, which is in the line with fees
paid by other S-REITs.
Source: Various Companies’ Annual Reports, DBS Vickers
0.9%
CRT
AiT
0.8%
0.7%
0.6%
FCOT
Kreit
Suntec
CRCT SGReit
CMT
Areit
MCT
0.4%
0.3%
MLT
FCT
0.5%
MINT
Cache
CDLHT
Preit
Cambridge
ART
PCRT
CCT
0.2%
Fees payable to the Trustee-Manager of Croesus Retail Trust
Fee Type
Payable to
Payment Mode
Description
Management Fee
Trustee-Manager
Cash/Units
Base fee calculated at a rate of 0.6% of the value of the Trust Property (up to
a JPY 100b in property value, if value is greater than JPY 100b, fees will be
0.5%). Performance fee calculated at a rate of 3.0% of net property income.
The Management Fee to be received by the Trustee-Manager will be partly
offset by the Tozai Asset Servicing and Administrative Fee to be paid by the
Croesus TMKs directly to the Japan Asset Manager under the Asset
Management Agreements.
It is assumed that 80% of the Management Fee net of the Tozai Asset
Servicing Fee will be paid in the form of units for FY14F and FY15F.
Acquisition Fee
Trustee-Manager
Cash/Units
Payable based on 1.0% of (i) the acquisition price of any real estate
purchased, whether directly or indirectly through one or more TMKs (ii) the
underlying value of any real estate which is taken into account when
computing acquisition price or (iii) in the case of an acquisition of the
contractual interest pursuant to a tokumei kumiai agreement, the underlying
value of the Real Estate which is taken into account when computing the
acquisition price payable (iv) the acquisition price of any other asset forming a
part of the Trust Property acquired by the Trustee-Manager on behalf of CRT
The Trustee-Manager will receive an acquisition fee for the acquisition of the
properties comprising of (i) the agreed purchase price of the completed Retail
Properties being JPY 502m or S$6.6m.
Divestment Fee
Trustee-Manager
Cash/Units
Payable based on 0.5% of (i) sale price of real estate sold or divested (ii) in the
case of a divestment of the contractual interest pursuant to a tokumei kumiai
agreement, the underlying value of the real estate which is taken into account
when computing the sale price payable for the divestment of such contractual
interest or (iii) the sale price of any other asset forming a part of the Trust
Property sold or divested by the Trustee-Manager on behalf of CRT.
Page 11
Company Focus
Fees payable to the Trustee-Manager of Croesus Retail Trust (continued)
Development
Management Fee
Trustee-Manager
Cash
3.0% of the total costs of development (excluding cost of land, interest on
capital cost or development loans during the development period and the cost
of money required to carry out the development) of any development, redevelopment, refurbishment, retrofitting, additional and alteration or
renovation works to the relevant property.
Asset Management
fees
Payable to Japan
Asset Manager
Cash (by relevant
Croesus TMKs) and
credited against the
fees payable to the
Trustee-Manager
The Japan Asset Manager is entitled to asset management fees comprising an
asset servicing and administrative fee, acquisition and disposition fee.
The asset servicing and administration comprises
(i) Property Operation Management Fee: Market Value of the TBI x
0.075% where the Market Value of the TBI is measured as the
prevailing value of the TBI held by Croesus TMK, determined by an
independent valuer.
(ii) Incentive Fee: Net Property Income of the TBI x 0.045%.
(iii) Deposition Fee: The disposition fee through the sale price of the TBI
(excluding consumption tax) x 0.14%, payable by the relevant
Croesus TMK within 30 days of the invoice date and which shall
not be refunded in any event.
The Tozai Asset Servicing and Adminstration Fee (Fees to the Japan Asset
Manager) will partly offset the Management Fee paid to the Trustee-Manager
so as to reduce the Management Fee paid to the Trustee-Manager. The
Deposition Fee payable to Japan Asset Manager will also partly offset the
Divestment Fee paid to the Trustee-Manager.
Property Manager’s
Fees
Payable to relevant Cash
Property Managers
Page 12
Aeon Town Moriya
Aeon Town Suzuka
Luz Shinsaibashi
Mallage Shobu
JPY300,000/mth
JPY300,000/mth
2.0% of monthly Gross Rental Income
Base Fee: 9.5% of monthly Gross Rental Income
Incentive Fee: 30% of annual Net Operating
Income in excess of an agreed amount.
Company Focus
Competitive Strengths
CRT’s key objective are to deliver a competitive return on
investment to unitholders through growing distributions on a
regular basis and long term capital value appreciation of its
portfolio of assets.
The initial portfolio is located in Japan in order to create a core
portfolio of stable income generating assets. This would serve
as a foundation for CRT to pursue development and
acquisition opportunities in the region including Japan, to
generate long term capital value appreciation and returns.
CRT’s principal investment strategy is to invest in a diversified
portfolio of pre-dominantly retail real estate assets located in
the Asia Pacific region.
Summary of CRT’s Growth Strategies
Strategies
Asset enhancement
strategy
This will involve actively managing its property portfolio in Japan with an objective to maximize returns while
maintaining a stable recurring income to CRT. This is achieved through prudent control of property expenses, active
leasing and marketing of any vacancies and expiring leases, programmes for regular maintenance of building structures,
asset refurbishment and enhancement projects to increase the competitive positioning of the properties of CRT.
Regional Growth Strategy
This will involve actively pursuing acquisition opportunities, including the pipeline available under the voluntary ROFRs
provided by the Croesus Group and the strategic partners. In evaluating potential acquisition opportunities, it will focus
on criterias such as i) yield thresholds above CRT’s cost of capital ii) occupancy and tenant diversification. In addition,
tenant credit quality, rental rate and occupancy trends will also be evaluated prior to the acquisition of the new
properties iii) markets with both stable and high growth potential and properties in strategic or prime locations that are
close to public transportation and proximity to highly populated areas iv) value-adding opportunities where there is
potential to increase occupancy rates and improve value through active property management v) geographical
diversification that improve the geographical diversity of CRT’s portfolio vi) tax and regulatory implication of the
jurisdiction in which these prospective retail assets are located. The potential to add value through selective renovation
or other enhancements will also be assessed including maintenance, repairs and capital expenditure requirements.
Capital and risk
It will endeavour to optimise CRT’s capital structure and apply appropriate risk management and finance strategies to
maximise the risk-adjusted returns to Unitholders. This includes optimising the mix of debt and equity used to finance
investment in future properties. Under the Trust Deed, CRT is permitted to borrow up to 60% of the value of the Trust
Property of CRT at the time the borrowing is incurred, taking into account deferred payments of CRT. It intends to
adopt an active financing cost management policy to manage the risks associated with changes in financing costs on
any future facilities while also seeking to ensure that CRT ongoing cost of debt capital remains competitive including
accessing the debt capital markets to secure longer term funding options in a more cost-efficient manner. In addition to
its debt strategy, it will capitalise on opportunities to raise additional equity capital for CRT through the issuance of
additional Units, if CRT has an appropriate use for such proceeds. For future overseas acquisitions, it may adopt currency
risk management strategies including the use of JPY denominated borrowings to match the currency of the underlying
asset investment and its revenues as a natural currency hedge, using cross currency swaps to hedge JPY denominated
net asset position of CRT, entering into forward contracts to hedge CRT's distribution income so as to minimise any
foreign exchange risk to Unitholders. CRT may hedge at least 80% of each semi-annual cash flow distribution with a
foreign exchange forward contract.
management strategy
Disciplined Development
Strategy
It intends to pursue an opportunistic approach to acquiring or investing in development projects that has the potential
to achieve the fullest use of a property while mitigating construction and leasing risks and short term dilution of yield
from any additional capital raised for the purpose of the development project. It will be actively involved in the overall
design and planning phases of each development project taking into consideration the potential to optimise tenancy
mix. It does not intend to undertake any speculative developments, and will only undertake a development project if it
meets the trust’s investment criteria. It has the option of outsourcing the construction and project development of any
development activities to third parties or tap the development experience of the Strategic Partners. In the future, if the
property has reached a stage that affords limited scope for income growth, it may be considered for sale and proceeds
from such sale to be reinvested in new properties with better potential for growth. Even though there are no restrictions
limiting development activities under the Business Trust Act, in accordance with the Trust Deed, the total contract value
of property development activities undertaken and investments in uncompleted property developments by CRT shall not
exceed 20% of the value of the Trust Property.
Page 13
Company Focus
Property Portfolio
Location of Croesus Retail Trust’s Portfolio of Initial Properties and Acquisition Pipeline
Page 14
Company Focus
Property details
Property
(1)
Vendor
Prefecture
Year of Completion
Net Lettable Area
Gross Floor Area
Carpark Lots
(sqm)
(sqm)
Occupancy Rate
Number of Tenants
(%)
WALE by NLA
(2)
Appraised Value
(Years)
(JPY)
(S$)
(JPY)
Purchase
Consideration
(S$)
Aeon Town Moriya
Daiwa House
Aeon Town Suzuka
DH Retail Two GK
Luz Shinsaibashi
Kaihatsu YK
Mallage Shobu
TMK Shobu
Project
Saitama
Nov-08
66,732
104,603
3,742
2,320 (out of
site)
Portfolio
-
Ibaraki
Jun-07
68,047
65,504
1,888
Mie
Jun-07
43,501
41,563
1,900
Osaka
Sep-09
2,342
2,501
4 (out of site)
100
1 master lessee, 112
(4)
sub-tenants
14.5
12,800.0m
163.3m
12,154.0m
100
1 master lessee, 40
(4), (6)
sub-tenants
14.5
8,790.0m
112.1m
8,439.0m
100
4
100
(7)
243
100.0
399
9.2
9,380m
119.7m
9,021.0m
6.1
21,500.0m
274.3m
20,584.0m
11.3
52,470.0m
669.4m
50,198m
155m
107.7m
115.1m
262.2m
640.4m
180,622
214,171
9,854
(8)
(1) The vendor of Aeon Town Moriya is Daiwa House, a strategic partner of CRT. The vendor of Aeon Town Suzuka is DH Retail Two GK, the operator of the tokumei
kumiai investment which is, inter alia, owned by Daiwa House. The vendor of Luz Shinsaibashi is Ebisubashi Kaihatsu TMK, the preferred equity of which is owned by
Marubeni. The vendor of Mallage Shobu is TMK Shobu Project, which is owned by Sojitsu and is a third-party vendor which is not related to the Sponsor or the
Strategic Partners. Aeon Town Suzuka is legally owned by DH Retail Two GK under a tokumei kumiai or “silent partnership” investment structure. [In addition to [DH
Retail Two GK] which the Trustee-Manager has been dealing and negotiating with on the relevant purchase and sale agreements, there may be other minority investors
in the tokumei kumiai investment. None of these minority investors are related to the Trustee-Manager, the Sponsor, the Strategic Partners, or any of the directors or
controlling shareholders of the Trustee-Manager or the Sponsor.]
(2) The Properties were assessed by the Independent Valuers as at 31 March 2013
(3) Excluding a separate 34.0 sq m section attached to the building.
(4) Security deposits have been obtained from the master lessee to mitigate the risks of its non-payment or financial failure. In addition, with respect to Aeon Town
Moriya and Aeon Town Suzuka, if the master lease agreements are terminated due to the failure of the master lessee to pay rent, the relevant trustee of such Property
(being the master lessor) may succeed the contractual position of the master lessee as sub-lessor under the sub-lease agreements.
(5) Excluding a separate 31,769.6 sq m section attached to the building.
(6) Security deposits have been obtained from the master lessee to mitigate the risks of its non-payment or financial failure as set out below:
(i)
Aeon Town Moriya: approximately JPY 466 million (equivalent to six months’ rent); and
(ii)
Aeon Town Suzuka: approximately JPY 165 million (equivalent to three months’ rent).
Aeon Town Suzuka is master leased to Aeon Town, which is a wholly-owned subsidiary of [Aeon Co., Ltd.], and one of Japan’s leading shopping mall developer and
operator with approximately [106] shopping centres nationwide. [Aeon Co., Ltd.] is listed with a market capitalisation of approximately JPY [881] billion (as of [21
March 2013]) and a S&P credit standing of [“A-”] from Standard and Poors (as of [March 2013]). [To be updated] Therefore, on the basis of the operating track record,
listed status and good credit standing of [Aeon Co., Ltd.], the Trustee-Manager believes that the three months’ security deposit quantum is commercially reasonable.
Moreover, CRT is acquiring Aeon Town Suzuka from DH Retail Two GK (the operator of the tokumei kumiai investment which is, inter alia, owned by Daiwa House)
who is the current vendor who acquired the property as a commercially package deal from the previous vendor without negotiating the quantum (in terms of months)
of the security deposit for the property.
(7)
The entire floor area of Mallage Shobu will be leased to GK CRT Shobu. GK CRT Shobu will sub-lease the Property to the existing tenants upon obtaining
consents of the existing tenants and will enter into sub-lease agreements with new tenants. The rent from the tenants will be paid directly into the property trustee’s
account which is held on trust for the benefit of the Croesus TMK as beneficiary of the TBI. The shareholder of GK CRT Shobu is Japanese ippan shadan hojin (“ISH”)
established by the Sponsor and the holder of the voting rights in the ISH is a certified public accountant retained by the Trustee-Manager, to which the TrusteeManager will have practical but not legal control.
(8)
Weighted by NLA of the Properties.
Page 15
Company Focus
Stability and growth
Croesus Retail Trust (CRT) offers investors a unique real estate
opportunity for exposure to Japan, the second largest retail
market in the world, ranking behind the US. With over 60% of
its GDP derived from private final consumption and annual
retail sales of over JPY130tr over the past decade, Japan
remains one of the largest and most lucrative retail markets in
the world. In addition to income stability from its initial
portfolio of stable and growth-oriented assets, as a Singaporelisted business trust, CRT’s value proposition is a capital
efficient platform that can provide potential earnings while
visible pipeline of retail properties provide a clear inorganic
growth potential.
A carefully chosen portfolio that offers stability and growth.
CRT’s portfolio of assets comprises 4 assets with a total
180,622 sqm of NLA. They are located largely in the Kanto
region (62%) of Ibaraki and Saitama and the remaining 38%
in the Kinki region of Osaka and Mie.
Breakdown of Portfolio by Location
Mallage Shobu is the largest asset, accounting for 41% of
portfolio value and contributes 42%-44% of FY14F and FY15F
net property income. The bulk of the remaining portfolio is
well split with regional malls such as Aeon Town Moriya and
Aeon Town Suzuka, accounting for c26% and 18% of net
property income, with the remaining from Luz Shinsaibashi
(14% of net property income).
Breakdown of Portfolio by Asset Value and NLA
by N LA
by Value
Aeon Town Moriya
24%
Mallage Shobu
37%
Aeon Town Moriya
38%
Mallage Shobu
41%
Aeon Town Suzaka
17%
Luz Shinsaibashi
1%
Aeon Town Suzaka
24%
Luz Shinsaibashi
18%
NPI Contribution by Assets
Osaka, 17%
100%
75%
14%
14%
18%
18%
26%
26%
Saitama, 41%
Mie, 18%
50%
Luz Shinsaibashi
Aeon Suzuka
Aeon Moriya
Mallage Shobu
25%
42%
44%
14F
15F
0%
Ibaraki, 24%
The properties are located in the rapidly urbanizing Greater
Tokyo region, which are enjoying both per capita GDP and
population growth, thus providing resilience and support to
the consumption expenditure.
GDP per Capita by Prefecture (USD)
US$/capita
Well located portfolio, highly accessible to transport
conveniences. A number of CRT’s properties are well-located
within walking distance to major transport conveniences. The
good accessibility should attract strong shopper footfalls,
particularly those at popular stations or major interchanges
such as Luz Shinsaibashi.
80000
70000
Distance of Properties from Nearest Transport Facilities
60000
Property
Aeon Town Moriya
50000
40000
Aeon Town Suzuka
30000
20000
Mallage Shobu
10000
Nationwide
Saitama
0
2002
2003
2004
Tokyo
Chiba
2005
Source: CBRE, Japan Cabinet Office
2006
Ibaraki
Mie
2007
2008
2009
Luz Shinsaibashi
Source: CBRE, DTZ
Page 16
Transport Facilities
Distance
Moriya Station, Tsukuba Express, 7min walk
Kanto-Joso Line
Hiratacho Station, Kintetsu
20min walk
Suzuka Line
Kuki Station, JR Utsunomiya Line
7km
Kitamoto Station, JR Takasaki
Line
10km
Namba and ShinsaibashiStations, Few mins
subway Midosuji Line
walk
Company Focus
The portfolio will be acquired at a 4.3% discount to valuers’
valuation or JPY52,450m. This translates to an average 6.4%
NPI yield. At a 554bps spread over the Japan risk free rate
(currently at c0.87%), this provides one of the highest yield
gaps amongst mature Asian regional markets. Furthermore, as
these assets were bought at a discounted value, there is
potential upside in book values, when the assets are revalued
to market levels.
Breakdown by GRI and NLA (Without Master Lease)
NPI Yields by Property
8.0%
7.0%
6.7%
6.4%
6.2%
6.0%
4.8%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
Mallage Shobu
Aeon Moriya
Aeon Suzuka
Luz Shinsaibashi
In addition, its top 10 tenants generate some 60.5% of its
rental income base. This is largely anchored by master lessee
Aeon which makes up c38.5% of its gross rental income.
Aeon is the master lessee for Aeon Town Moriya and Aeon
Town Suzuka with a remaining 14.5-year standard lease term
till 2027 for both properties.
Top 10 Portfolio Tenants
Retail Cap Rate Spread in Asia
7.0%
NOI Yield (2H12)
Tenant
Property
Aeon Town
Aeon Town
% NLA
% GRI
－
61.8%
38.5%
Home furnishing,
3.8%
2.2%
2.8%
2.0%
Moriya
10Y Govt Bond Yield
6.0%
Trade Sector
Aeon Town
5.0%
Suzuka
4.0%
Nafco
3.0%
Mallage Shobu
home centre
2.0%
1.0%
109
0.0%
Cinemas
Mallage Shobu
Entertainment
Himaraya
Mallage Shobu
Sporting goods
1.7%
1.7%
York Mart
Mallage Shobu
Food
1.6%
2.0%
High occupancy level of 100%. CRT’s portfolio offers a stable
income platform with high take up rate of 100% as of Dec12
and a weighted average lease to expiry of 11.3 years. It derives
38% of its gross rental income from its master lease with
Aeon. Meanwhile, its remaining tenant mix is diversified,
comprising of fashion, F&B as well as entertainment and
services and events.
Nojima
Mallage Shobu
Home electronics
1.5%
0.9%
Academia
Mallage Shobu
Books, stationery
1.3%
0.8%
Sanki
Mallage Shobu
Fashion
1.1%
0.8%
Play Land
Mallage Shobu
Entertainment
0.9%
2.7%
H&M
Luz Shinsaibashi
Fashion
0.8%
9.0%
77.2%
60.5%
Breakdown by GRI and NLA (With Master Lease)
High flexibility in managing tenant mix. The majority of CRT’s
leases are fixed term lease structures and this provides the
Trustee-Manager with the ability to manage its portfolio to
optimize occupancy and rents. Leases in Japan are typically
structured on a standard or fixed term lease basis. A standard
lease provides security of tenure to the tenant upon expiry of
lease as the tenant can opt to stay and renew the lease at
market rates or relocate while fixed term lease structures are
for the duration of the lease and tenants do not have the
security of tenure to stay if the landlord does not wish to
renew the lease.
Tokyo
HK
Spore
Shanghai
Seoul
Top Ten Tenants
Page 17
Company Focus
Indicators of Key Drivers for the Retail Sector
Breakdown of Portfolio Lease Structure
Standard
Lease, 38.5%
Fixed Term
Lease, 61.5%
In addition, it derives 49.4% of its rental income from a
variable component. With such a high degree of flow-through
of income growth to bottomline, we believe it would
incentivise the asset manager and Trustee-Manager to
continue driving shopper footfalls and improving tenant sales.
This would enhance the value of the property in the long run.
Breakdown of GRI by Rent Type
Guranteed
Min, 33.6%
Fixed, 50.6%
Variable, 49.4%
Other
Variable, 15.8%
Indicator
DI for Current
and Future
Economic
Conditions
GDP and PerCapita GDP
Outlook
Improving
Impact on Retail Sector
Moderate Outlook may
improve consumer's sentiment
Improving
Consumer
Confidence
Improving
Income Level &
Disposable
Income
Improving
Unemployment
Rate
Improving
Higher per-capita GDP
indicates higher purchasing
power and propensity to
consume
Strong indicator for retail sales
and seen in improved sales in
department sales
Household income has
remained steady, indicating
that consumption patterns are
stable
Lower unemployment rate
signals a possible recovery in
consumption and retails sales
Source: CBRE, DBS Vickers
While the outlook offers much promise, private consumption
has remained relatively resilient and unemployment levels fairly
stable. This has resulted in a relatively stable retail market in
Japan, despite the deflationary environment over the past few
years.
Japan Avg Monthly Income and Consumption
Expenditure (Workers’ Household)
600
62.00%
JPY'000/mth
61.50%
500
61.00%
400
60.50%
300
60.00%
200
Retail market outlook
Improving socio economic outlook positive for retail sales.
Japan has been in a deflationary environment over the past
couple of years and overall retail sales growth has been fairly
weak. However, recent policy measures aimed at reflating the
economy by the newly elected government – The Liberal
Democratic Party (LDP) has injected in much optimism in the
outlook. At this moment, macro socio-economic indicators
that are expected to influence the retail sector showing
improvements, coupled with policy measures aimed at
performance of retail market is expected to show a steady
uptrend in the coming years.
Page 18
59.50%
100
59.00%
0
58.50%
2002
2004
2006
2007
2008
2009
2010
2011
Consumption Expenditure
Surplus
Non Consumption Expenditure
Consumption Ratio
Source: Japan Ministry of Internal Affairs and Communications
Looking ahead, consumption trends in Japan continue to
evolve, in line with changing consumer needs due to an aging
population and other factors. More innovative retailers are
evolving by adapting retail formats and product lines to target
or create new market segments offering the greatest
possibilities. As such, shopping centres, with their larger
format concepts and general merchandising services have the
flexibility in strategizing tenant mix to suit the customer needs.
Thus, the share of shopping centre sales as a percentage of
total retail sales has remained relatively unchanged over the
past few years.
Company Focus
Shopping Centre Sales vs Total Retail Sales
JPY'Trillion
21.0%
turn, could lead to cap rate compression and potential for NAV
growth for CRT, going forward.
20.5%
120
100
20.0%
80
Total Number of Retail Stores and Floor Space 1972 2007
million' sqm
Number of stores
20
JPY/Tsubo/Month
50000
Nationwide
Osaka
Saitama
Chiba
Number of Shopping Centre Openings
City Centre
120
Peripheral area
Suburbs
100
80
68
60
39
40
43
54
56
0
18
9
7
2001
65
60
17
20
Tokyo
Ibaraki
Mie
2007
Source: METI, DBS Vickers
27
Historical Shopping Centre Rents 2001 - 2010
2004
0
2002
Rents bottomed out in 2011. The nationwide average rent for
shopping centres has been on a declining trend since 2006. In
2010, rents continued to decline by another 7% yoy as a result
of the sluggish economy, coupled with the huge number of
new completions in 2007 and 2008. However, the negative
trend is expected to reverse on the back of improving economy
and more subdued new supply. In major cities like Tokyo and
Osaka, rents have started to see modest improvement since
2010, while Mie and Chiba registered greater increases. CBRE
believe that rents have bottomed out in 2011 and should
stabilise going forward.
40
1999
Source: CBRE, DBS Vickers
60
1997
% of SC to Total retail sales
1994
Other Sales
1991
Shopping Center (SC) Sales
1988
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
100
80
1985
18.5%
0
120
1982
20
160
retail floor space (RHS)
140
1979
19.0%
no. of stores opening (LHS)
1976
40
2000
1800
1600
1400
1200
1000
800
600
400
200
0
1974
19.5%
60
1972
160
140
14
14
13
15
8
10
10
9
9
2002
2003
2004
2005
2006
34
24
23
10
16
17
16
11
8
2007
2008
2009
2010
Source: Trustee-Manager, DBS Vickers
40000
Furthermore, with cap rate spreads close to recent highs, we
believe there is room for cap rate compression as financial
market conditions improve.
30000
20000
10000
Benchmark Cap Rates Spread Trends
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Source: JCSC, DBS Vickers
bps Grade A office
Multifamily Residential
Suburban Retail
700
600
Demand-supply dynamics remain positive, potential for cap
rate compression. Over the next few years, we believe there is
likely to be a significant decline in new large scale shopping
centre completions. Following the strong spate of new
shopping centre developments pre-2008, the Japanese
government had imposed stricter rules on acquisition of large
scale development sites to regulate shopping centre supply in
2008. As a result, new completions saw a decline from a peak
of 102 malls in 2007 to just 55 malls in 2010. Meanwhile,
there was only 10 applications for opening of large new malls
(>20,000sm GFA) in 2012. As supply lags, we believe, there is
room for rents to stabilize and improve as well as upside for
capital values in the medium. This, in
500
400
300
200
100
0
1H05 2H05 1H06 2H06 1H07 2H07 1H08 2H08 1H09 2H09 1H10 2H10 1H11 2H11
Source: CBRE
Page 19
Company Focus
Growth Strategies
CRT’s earnings growth drivers are derived from three sources:
i)
organic improvement from current portfolio
ii)
inorganic growth from asset enhancements of
existing properties and
iii) new acquisitions
We forecast a 4.7% growth in net property income (NPI) over
FY14-FY15F for CRT’s current portfolio. This is largely derived
from:
i) Higher contributions from c26% of the portfolio
enjoying lease reversions over FY14-FY15
ii) Improvement at Mallage Shobu post asset
enhancement initiatives of JPY225m
Projected NPI Growth
5,500
JPY'm
FY14‐FY15F NPI Growth = 4.7% 5,000
Leases that are expiring are largely coming from Mallage
Shobu (FY15) contribute to 51% of the property , which the
manager believe is an opportune time to start refurbish with
an aim to remix tenants these leases come due. Apart from
increased foot traffic from the expected development of an
extension wing, the manager believes that there is more rental
upside to be achieved from the expiring leases as Mallage
Shobu commenced operations during the global financial crisis
in 2008 and thus, the current lease terms would have favoured
the lessee then due to the market circumstances.
Lease Expiry Profile by Property by GRI
Mallage
Shoubu
Luz
Shinshaibashi
2%
1%
51%
6%
4%
37%
100%
0%
0%
0%
0%
0%
100%
100%
<Jun13
FY14
FY15
FY16
FY17
>FY17
Total
AEON
Town
Moriya
0%
0%
0%
0%
0%
100%
100%
AEON
Town
Suzuka
0%
0%
0%
0%
0%
100%
100%
Portfolio
1%
0%
26%
3%
3%
67%
100%
4,500
4,000
Historical performance of these assets show that rental income
have been rising As a result of proactive tenant leasing and
promotional activities, Mallage Shobu has been successful in
increasing overall tenant sales each year (topline have grown
by an average 4.5% over FY10-12. As such, we believe that
strategies to enhance its mix are likely to be well executed and
received by consumers.
3,500
3,000
2,500
14F
Revenue
15F
Net Property Income (NPI)
Source: DBS Vickers
26% of rental income to be renewed over next 3 years.
Supported by a long WALE of 11.3 years and with only c27%
of its gross rental income (of which a majority of it to be in
FY15F) to be renewed in the coming 2 years, CRT offers a
good income visibility with minimal risks to earnings in the
immediate term.
Historical Annualised Rental Income Performance of
Mallage Shobu over FY10-FY12
2,500
JPY'm
2,000
1,500
1,000
Portfolio Lease Expiry Profile by GRI
500
80%
67%
70%
FY10
FY11
FY12
60%
50%
40%
26%
30%
20%
10%
1%
0%
Before
Jun'13
FY14
0%
Page 20
FY15
3%
3%
FY16
FY17
>FY17
YTD Dec (1H13)
Improving property utilization at Mallage Shobu. Mallage
Shobu has currently undergone an asset enhancement exercise
of JPY225m to build a 1,000sm extension block. The building
has been completed and the leading fashion brand tenant
have started operations. This will provide an additional source
of income for CRT. Utilizing excess allowable floor area will
also yield a higher return on this property going forward. This
will likely have a positive effect on the value of the
development.
Company Focus
Mallage Shobu
Property Yield Spreads vs Japan 10-Yr Govt Bond Yield
600
bps
500
496
421
394
400
419
388
405
271
300
213
200
100
Suburban Retail
Grade A Office
Current Spread to 10 yr JCB
High-Specfications
Logistics
Multi-family Residential
Average Spread to 10 yr JCB (2005-2012)
Source: CBRE
Other capex plans in the pipeline include works at Luz
Shinsaibashi. Post upgrading works and tenant rejigging, we
believe that the subject properties will be better positioned to
attract more shopper footfalls.
Capex Plans
Property
FY14
Luz Shinsaibashi
Replacement of building
Mallage Shobu
Extension of building to
FY15
signboard JPY8m
Renovation work
attract big-name tenant
associated with
JPY225m
tenant replacements
JPY100m
Renovation work
associated with tenant
replacement JPY150m
Paving work for off-site
Currently, CRT has:
(i)
First rights to negotiate with third parties for 4
completed retail properties in Japan, 1 property
under development
(ii)
Right to negotiate for Marubeni’s interest in 2
properties in China, currently under development
(iii)
Right to negotiate with Sun Wah (Shenyang) for the
acquisition of 100% of the retail portion of Phase 1
and Phase 2 of the Shenyang retail project. Phase 2 is
expected to complete in Apr 2015 and will have a
GFA of 56010sm
(iv)
ROFR from Marubeni for any existing and future predominantly retail properties in Asia Pacific ex-Japan
(v)
ROFR from Daiwa House for any future properties in
Asia Pacific ex-Japan
(vi)
ROFR from Sponsor and certain other members of
the Croesus Group for any proposed offer of predominantly retail real estate assets by a third party
and sale of any predominantly retail real estate assets
in Asia Pacific by Sponsor
parking space JPY69m
Others
JPY46.9m
JPY19.7m
Total
JPY490.9m
JPY119.7m
Acquisition Pipeline
Property
Acquisition growth potential
Inorganic growth potential and room for uplift in values from
cap rate compression. CRT holds significant growth potential
with a visible and extensive pipeline of acquisitions from third
parties and its Sponsors, in both Japan and overseas. This will
enable the trust to grow its distribution income as well as
diversify its geographical footprint.
In the near term, the focus of acquisition growth would be in
Japan given the large spread between property yields and
finding costs, which should result in significant accretion.
Property yield-funding cost gap in Japan is at close to an 8-yer
high and has remained relatively unchanged in past few years,
particularly for suburban retail assets.
Marubeni ROFR
Maluzhen
Shenyang Phase 1
Shenyang Phase 2
Location
Type
Exp Date of
Completion
Est Attrib
GFA (sm)
Jiading,
Shanghai
Shenhe,
Shenyang
Shenhe,
Shenyang
Retail
Dec 2013
42,171
Retail
Dec 2012
31,799
Retail
Apr 2015
56,013
Sub-total
Third party Vendors and Strategic partners
Mallage Saga
Saga, Japan
Retail
Luz Omori
Tokyo,
Public/Retail
(Marubeni)
Japan
Forecast Kyoto
Kyoto,
Entertainme
Kawaramachi
Japan
nt
NIS Wave 1
Tokyo,
Retail
Japan
Sub-total
Total
129,983
Mar 2003
Feb 2011
46,566.2
9,271.2
na
2,422.7
na
7,140.8
65,400.9
195,384
Page 21
Company Focus
Reputable sponsor and strategic partners. Croesus Merchants
International Pte Ltd, part of the Croesus Group, as sponsor
and Daiwa House and Marubeni as strategic partners, intends
to take up approx. 7.7% stake in CRT on Listing. This is in
addition to their ownership of the Trustee-Manager. This
demonstrates the stakeholders’ commitment to the trust as
well as alignment of interest.
Potential Growth in Portfolio NLA
450,000 NLA (sm)
400,000 NLA Growth: 108% 350,000 300,000 250,000 200,000 150,000 100,000 50,000 ‐
Initial portfolio
Japan Acquisitions
China Acquisitions
Croesus Group is an independent Asian based private
investment firm that has been involved in real estate
management and strategic business advisory including
managing a US$500m residential real estate fund in Japan for
Citi Property investors.
CRT’s gearing upon listing is expected to be 43.7%. Based on
a 60% self-mandated ceiling, this provides the trust with an
additional JPY23,000m debt headroom. We reckon this is likely
to be sufficient to fund the Japan acquisitions, using
simplistically the average psm price paid for the initial portfolio
as a guide.
Our sensitivity table below shows that for every JPY5b worth
of new acquisitions, at NPI yields of 5-7%, would lift FY14 NPI
by 5-11%.
Acquisition value
(JPYm)
Sensitivity of FY14F NPI to Acquisitions
5,000
10,000
15,000
20,000
25,000
30,000
5.0%
8%
16%
24%
31%
39%
47%
Source: DBS Vickers
Page 22
5.5%
9%
17%
26%
35%
43%
52%
NPI Yield (%)
6.0%
9%
19%
28%
38%
47%
57%
6.5%
10%
20%
31%
41%
51%
61%
7.0%
11%
22%
33%
44%
55%
66%
Daiwa House is one of Japan’s leading housing companies,
retail property developer and real estate conglomerates with a
market cap of cJPY600b.
Marubeni is one of Japan’s largest trading companies with a
market cap of JPY800b.
Company Focus
Key Risks
Earnings and operational risk. AEON Town is the Master Lessee
of two of the Initial Portfolio assets – AEON Town Moriya and
AEON Town Suzuka. Together they account for 41% of total
acquisition value and 44% of projected FY14F-15F NPI. Hence
CRT will be dependent on AEON for a significant portion of its
income and any factors that affect AEON’s ability to make
rental payments, including the latter’s financial position, local
economy, competition, operations disruption and material
losses, could affect CRT. This is partly mitigated by security
deposits equivalent of 6 months of rent for AEON Town
Moriya and 3 months for AEON Town Suzuka.
Mallage Shobu is the largest contirbutor to earnings at 40% of
property value and 42% of net property income. With a
majority of its leases up for renewal in FY15, there are inherent
earnings risks in the event that the property manager is not
able to retain / renew rents at more attractive rates.
Concentration risks. The initial portfolio is solely concentrated
in Japan for the next 2-3 years. Although the Trust plans to
diversify its focus into the Asia Pacific region in the medium
term including an acquisition pipeline from Marubeni’s
interests in 2 assets in China. These will be operational only in
the next 2 years.
Country risks. Japan is in a deflationary mode and population
growth is negative. This may limit the longer-term growth
rental and NAV potential for CRT. This will be partly mitigated
by CRT’s ability to own assets that are located in areas that
enjoy population inflow and accessibility to transport
conveniences, that would translate to good patronage at its
retail malls.
Currency risks. As CRT’s initial portfolio is located in Japan, its
revenue and distributable income is generated in Japanese Yen.
Given that CRT is listed in Singapore and dividends are paid in
Singapore Dollars, volatility in currency could result in dividend
volatility upon translation. In this respect, the manager aims to
Restrictions on asset sales. Sale of assets may require consent
mitigate this risk by taking natural hedges on the balance
from tenants. The transfer of AEON Town Suzuka and AEON
Town Moriya is subject to a right of first refusal of AEON Town, sheet, and will entering into hedging contracts for distributions
the master lessee of these properties. Additionally, the consent to limit earnings volatility due to translation.
of AEON Town is necessary to transfer the leased land of
Furthermore, it could look to diversify its geographic footprint
AEON Town Suzuka to a third party.
in the future into other countries such as China. This will
widen its exposure to more than one currency. To mitigate the
Large exposure to fixed rent structures. Given that 50.6% of
currency fluctuation risks, the Trustee-Manager intends to
CRT’s gross rental income is derived from fixed rents and
hedge more than 80% of the expected distributions of CRT be
49.4% from variable sources, any increase in operating costs
entering into forex forward contracts.
such as direct expenses, taxes, service and maintenance costs
and inflation, may not be offset through rental hikes.
Reliance on Japan Asset Manager. As an external asset
manager, Tozai Asset Management, is engaged in the
investment in and the development and management of other
retail properties in Japan. This may pose some conflict of
interest for CRT if Tozai manages any asset that could
potentially compete with CRT’s assets. To mitigate this
potential issue, Tozai has created an independent, dedicated
team for CRT with firewall against other staff.
Tax in Japan. As CRT’s assets are held in TMK structures, any
change in corporate and withholding taxes upon such
structures could affect CRT’s distribution to unitholders.
Gearing. As a business trust, there is no gearing limit for CRT.
However, under the Trust Deed constituting CRT (the trust
Deed), CRT is permitted to borrow up to 60% of portfolio
asset value, including deferred payments. CRT’s initial gearing
upon listing will be at 43.7%. This limitation could affect CRT’s
growth potential.
Page 23
Company Focus
Financials
Income Statement Analysis
CRT derives its gross rental income which includes base rent,
variable rent, common areas maintenance fees and utilities as
well as other income from signage and billboard fees.
As at Dec12, CRT generates 50.6% of its gross rental income
from fixed term rents while 49.4% are from variable sources.
Of this variable amount, 33.6% points come from guaranteed
minimum rents and the remaining 15.8% points from other
variable rents.
CRT’s distribution policy is to distribute 100% of annual
distribution income from listing date till end FY15, on a semiannual basis. Distributions will be paid in Singapore dollars.
P&L Summary
FYE Jun (JPYm)
Gross Revenue
Property Expenses
Net Property Income
Other Operating Income
Management fees
Japan asset managers' fees
Other Expenses
EBIT
Non-Operating Income
Interest Income
Interest Expense
Net Income
Tax
Net Income
Non-tax deductible expenses
Income available for distribution
Revenue Gth (%)
N Property Inc Gth (%)
Distributable Inc Gth (%)
Dist. Payout Ratio (%)
Page 24
FY14F
FY15F
5,026.9
(1,831.9)
3,195.0
5,099.5
(1,752.7)
3,346.8
(387.8)
(53.7)
(105.2)
2,648.3
(391.7)
(54.4)
(109.4)
2,791.2
0.2
(443.1)
2,205.4
(252.3)
1,953.2
562.4
2,515.6
0.1
(443.1)
2,348.3
(268.0)
2,080.3
542.9
2,623.2
N/A
N/A
N/A
100%
1.4%
1.4%
4.3%
100%
Company Focus
Segmental Revenues
FYE Jun (JPYm)
Mallage Shobu
Aeon Town Moriya
Aeon Town Suzuka
Luz Shinsaibashi
Gross revenue
FY14F
2,894
934
661
583
5,027
FY15F
2,967
934
661
564
5,100
Mallage Shobu
Aeon Town Moriya
Aeon Town Suzuka
Luz Shinsaibashi
Net property income
1,323
816
590
466
3,195
1,474
816
590
466
3,347
Mallage Shobu
Aeon Town Moriya
Aeon Town Suzuka
Luz Shinsaibashi
Occupancy
99.5%
100%
100%
100%
99.9%
99.8%
100%
100%
100%
99.9%
Contribution (Gross Revenue)
Mallage Shobu
Aeon Town Moriya
Aeon Town Suzuka
Luz Shinsaibashi
Gross revenue
58%
19%
13%
12%
100%
58%
18%
13%
11%
100%
Page 25
Company Focus
Balance Sheet and Cashflow Analysis
Property value of JPY52,450m. As at Listing Date, CRT will
have an initial portfolio of investment properties that is valued
at JPY 52,450m of investment properties. The completed
properties are acquired at 4.3% discount to its valuation.
Implied NPI yields on acquisition cost ranging from 5% of Luz
Shinsaibashi, 6.4% for Mallage Shobu, 6.7% for AEON Town
Moriya and 7.0% for AEON Town Suzuka.
Loans of JPY25,220m. The portfolio will be partially funded by
debt facilities of JPY26,000 (before netting off upfront fee of
JPY715m). The loans provide a natural hedge to earnings as
they are all Yen borrowings. The debt, broken down into a JPY
23,500m loan and a JPY 2,500m bond have long dated – 5
year maturity periods. The JPY 23,500m loan is payable in 2
installments while the JPY 2,500m bond is payable on
maturity.
Initial gearing ratio of 43.8% as at Listing Date includes the
acquisition of the initial portfolio with planned capex.
Effective interest cost is 1.6% for FY13 and 1.5% for FY14.
The majority of the debt cost is understood to be fixed.
Capex requirements. An estimated capex of JPY490.9m and
JPY119.7m has been forecasted for FY14 and FY15
respectively. This is largely going into planned refurbishment at
Mallage Shobu - paving works for offsite carpark and finishing
works for as well as extension of building to attract a big-name
tenant. In addition, CRT is expected to spend a minimal JPY
8m in replacing signboards at Luz Shinsaibashi
Balance Sheet Summary
FYE Jun (JPYm)
Cash
Trade Receivables
Inventories
Other Current Assets
Current Assets
As at Listing Date
FY14F
FY15F
1,871
1,420
3,290
1,617
1,226
2,843
1,310
1,244
2,553
Investment Properties
Other LT Assets
Non Current Assets
Total Assets
52,470
1,926
54,396
57,686
54,233
1,926
56,158
59,001
54,352
1,926
56,278
58,831
34
34
34
252
286
35
268
303
LT Debt
Other LT Liabilities
Non Current Liabilites
Total Liabilities
25,220
2,165
27,385
27,419
25,220
2,165
27,385
27,672
25,220
2,165
27,385
27,688
Unitholders Funds
Minority Interest
Total Unitholders' Equity
Total Liabilities and Equity
30,267
31,329
31,143
30,267
57,686
31,329
59,001
31,143
58,831
Leverage Analysis
Gearing Ratio
43.7%
42.7%
42.9%
Trade Payables
ST Debt
Tax Provision
Other ST Liabilities
Current Liabilities
Page 26
Company Focus
Cashflow Statement
FYE Jun (JPYm)
FY14F
2,205
FY15F
2,261
(269)
(199)
Chg in Wkg.Cap.
353
357
Other Operating CF
194
(17)
Net Operating CF
2,753
2,436
Net Invt in Properties / Capex
(491)
(120)
Other Invts (net)
0
0
Invts in Assoc. & JV
0
0
Div from Assoc. & JVs
0
0
Other Investing CF
0
0
Net Investing CF
(491)
(120)
Distribution Paid
(2,516)
0
(2,623)
0
(2,516)
(2,623)
Pre-Tax Income
Tax paid
Chg in Gross Debt
New units issued
Other Financing CF
Net Financing CF
Net Cashflow
(254)
(307)
Starting Cash on Balance Sheet
1,871
1,617
Ending Cash on Balance Sheet
1,617
1,310
Page 27
Company Focus
Valuation
DCF value of S$1.14, based on operating cashflow from initial
portfolio, assuming a terminal growth rate of 1%. This would
translate to a FY4 and FY15 yield of 8.0-8.2%.
In terms of sensitivity to WACC and terminal growth rate
changes, for every 0.5% pt move in terminal growth, valuation
would expand by 14.1% while for every 0.5% pt move in
WACC, valuation would shift by 21.2%.
Sensitivity of DCF to WACC and Terminal Growth Chgs
WACC
We have valued CRT based on DCF methodology. We note
that CRT’s initial portfolio focus is in Japan and near term
growth potential would likely be concentrated in Japan given
the large existing yield spread while any diversification of
geographical footprint, for higher growth overseas markets
would likely occur in the medium term. Hence, in our DCF
analysis, we have assessed the value of CRT assuming a fully
Japan exposure.
3.9%
4.4%
4.9%
5.4%
5.9%
0.5%
51,449
42,102
34,983
29,406
24,937
Terminal growth
1.0%
1.5%
61,309 75,283
49,121 58,564
40,178 46,902
33,366 38,343
28,029 31,824
2.0%
96,628
71,948
55,947
44,785
36,593
2.5%
133,259
92,390
68,768
53,452
42,767
Source: DBS Vickers
In comparing with its J-REITs peers, we also take into account
adjustments for cash traps such as depreciation as well as
payment of fees in units. Thus, we would add c180bps for the
first two factors as well as an additional 50bps for the smaller
REIT size. This would translate to fair value yield of c6-6,2% for
FY14 and FY15.
Discounted Cashflow Model
FYE Jun (JPY$m)
Operating profit
Less Tax Provision
Less Capex
Chgs in Wkg Cap
Total FCF to the Firm
No of units (m)
FY14F
2,648
(252)
(491)
194
2,099
430.2
Sum of PV of FCF
PV of Terminal Value
Enterprise Value
Net Cash (Debt)
Equity Value (JPYm)
No of units
DCF /unit (JPY)
JPY/SGD
DCF/unit (S$)
19,551
43,976
63,527
-23,349
40,178
458.7
87.6
83.67
1.05
Risk Free Rate
Equity risk premium
Beta
Cost of Equity
Debt/equity financing
After-tax cost of debt
WACC
Terminal growth
0.88%
10.45%
0.75
8.7%
50.0%
1.073%
4.90%
1%
Source: DBS Vickers
Page 28
FY15F
2,791
(268)
(120)
(17)
2,386
436.5
FY16F
2,794
(268)
(25)
(1)
2,500
442.8
FY17F
2,850
(275)
(25)
(18)
2,532
449.1
FY18F
2,852
(275)
(25)
(1)
2,551
455.4
FY19F
2,932
(284)
(25)
(22)
2,601
461.8
FY20F
2,933
(284)
(25)
(0)
2,623
468.1
FY21F
3,030
(295)
(25)
(35)
2,675
474.5
FY22F
3,035
(296)
(25)
(2)
2,712
480.9
FY23F
3,076
(301)
(25)
(15)
2,736
487.4
Terminal Value
70,927
Company Focus
S-REIT Peer Comparison
Office
Fraser Commercial Trust
CapitaCommercial Trust
Keppel REIT
Suntec REIT
Retail/Mixed
CapitaRetail China Trust
Frasers Centrepoint Trust
Mapletree Commercial Trust +
Starhill Global REIT
Perennial China Retail Trust
Mapletree Greater China
Commercial Trust
Industrial
A-Reit +
Ascendas India Trust+
Mapletree Industrial Trust
Mapletree Logistics Trust
Cambridge Industrial Trust
Cambridge Industrial Trust
Hospitality
Ascott Residence Trust
CDL Hospitality Trust
Far East Hospitality Trust
Healthcare
Parkway Life
Religare
BBG
Code
FYE
Share
Price (S$)
Mkt Cap
(S$m)
DPU Yield (%)
FY13F
FY14F
Bk NAV/
Unit ($)
P/Bk
(x)
Gearing
(%)
FCOT SP
CCT SP
KREIT SP
SUN SP
Sep
Dec
Dec
Dec
1.35
1.44
1.29
1.54
866
4,077
3,374
3,443
5.9
5.4
6.2
6.1
7.1
5.7
6.5
6.1
1.50
1.66
1.32
2.04
0.90
0.86
0.97
0.75
28%
30%
43%
37%
CT SP
CRCT SP
FCT SP
MCT SP
SGREIT SP
PCRT SP
MAGIC SP
Dec
Dec
Sep
Mar
Dec
Dec
Mar
1.99
1.41
1.86
1.16
0.84
0.55
0.94
6,611
970
1,527
2,169
1,622
613
2,489
5.1
6.8
5.9
5.6
5.4
7.2
5.8
5.7
7.3
6.3
5.8
5.6
8.1
6.0
1.64
1.29
1.53
1.06
0.87
0.67
0.91
1.21
1.09
1.21
1.09
0.96
0.81
1.03
37%
32%
32%
38%
32%
8%
41%
AREIT SP
AIT SP
MINT SP
MLT SP
CREIT SP
CACHE SP
Mar
Mar
Mar
Dec
Dec
Dec
2.18
0.70
1.31
1.09
0.71
1.24
4,878
541
2,127
2,633
845
866
6.3
6.6
7.0
6.4
7.0
7.0
6.3
6.9
7.2
6.5
7.4
7.3
1.94
0.61
1.02
0.79
0.64
0.95
1.12
1.15
1.28
1.37
1.10
1.30
28%
21%
37%
35%
35%
32%
ART SP
CDREIT SP
FEHT SP
Dec
Dec
Dec
1.24
1.71
0.95
1,410
1,650
1,528
7.0
6.7
6.5
7.3
7.0
6.8
1.35
1.61
0.97
0.92
1.06
0.98
37%
28%
29%
PREIT SP
RHT SP
Dec
Dec
2.30
0.835
1,392
658
4.7
-
4.9
9.7
1.55
0.8
1.48
1.04
33%
35%
(%)
F’cast Yr 2
5.7
7.3
6.3
8.1
P/bk
(x)
1.21
1.09
1.21
0.81
Note: DPU yield for S-REITs with FYE Mar are displayed on a FY14, FY15 basis
Source: DBS Vickers, Bloomberg Finance L.P
Regional Retail REITs Comparison
Company
Singapore
CapitaRetail China Trust
Frasers Centrepoint Trust
Perennial China Retail Trust
Hong Kong
Link REIT
Fortune REIT
Malaysia
CMMT
Sunway REIT
Pavilion REIT
Hektar
Japan
Japan Retail Fund
Frontier
Thailand
CPNRF
Tesco Lotus
Australia
Westfield Retail
CFS Retail Property Fund
BBG Code
CT SP
CRCT SP
FCT SP
PCRT SP
Price
(LC)
1.99
1.41
1.855
0.55
Mkt cap
(LCm)
6,611
970
1,527
613
Dec
Dec
Sep
Dec
Yield
F’cast Yr 1
5.1
6.8
5.9
7.2
823 HK
778 HK
37.8
7.11
86,350
12,054
Mar
Dec
4.2
5.1
4.6
5.5
1.36
0.85
22.4
22.4
16%
24%
CMMT MK
SREIT MK
PREIT MK
HEKT MK
1.77
1.56
1.49
1.59
3,129
4,210
4,476
637
Dec
Jun
Dec
Dec
4.9
5.1
4.0
6.3
5.3
5.1
4.8
6.9
1.49
1.39
1.57
1.10
21.8
22.2
22.1
18.1
27%
33%
19%
42%
191,900
894,000
402,990
203,385
Aug
Dec
4.0
4.2
4.1
4.3
1.23
1.53
22.8
21.4
45%
30%
CPNRF TB
TLGF TB
18.4
13.2
29,440
23,760
Dec
Feb
6.0
4.5
6.5
4.8
1.74
1.26
12.5
20.8
2%
0%
WRT AU
CFX AU
3.06
1.995
9,346
5,643
Dec
Jun
6.5
6.9
6.7
7.0
0.91
0.94
35.8
16.5
22%
26%
8953 JP
8964 JP
FYE
EV/EBITDA Gearing
(x)
22.3
37%
15.0
32%
21.5
32%
22.3
8%
Source: Bloomberg Finance L.P
Page 29
Company Focus
Regional Retail REITs Comparison (cont’d)
Company
US
CBL
General Growth Properties
Glimcher Realty Trust
Simon Property
Taubman Centres
Macerich
Cedar Realty Trust
Excel Trust
Federal Realty
Kite Realty
Saul Centres
BBG
Code
CBL US
GGP US
GRT US
SPG US
TCO US
MAC US
CDR US
EXL US
FRT US
KRG US
BFS US
Source: Bloomberg Finance L.P
Page 30
Price
(LC)
21.58
19.71
10.50
158.27
74.53
60.52
5.18
12.12
99.65
5.55
43.94
Mkt cap
(LCm)
3,423
18,494
1,471
48,605
4,599
8,055
372
413
6,388
356
870
FYE
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Yield
F’cast Yr 1
4.3
2.4
3.8
3.0
2.7
3.9
3.9
5.5
3.0
4.4
3.3
(%)
F’cast Yr 2
4.5
2.6
3.9
3.2
2.8
4.1
3.9
5.5
3.1
4.5
3.8
P/bk
(x)
1.06
1.86
3.30
9.30
-33.72
1.96
1.13
1.09
4.86
0.69
11.30
EV/EBITDA
(x)
13.8
21.8
18.5
20.3
18.3
11.0
15.0
19.7
21.8
20.0
15.1
Gearing
68%
59%
63%
70%
92%
53%
58%
35%
57%
63%
69%
Company Focus
Snapshot Comparison of Regional Retail REITs
REIT
Type Structure Geography
Asset size
(sm)
CRT
Retail
BT
Japan
256,340
CMT
Retail
REIT
Singapore
0.483m
FCT
Retail
REIT
Singapore
81,735
CRCT
Retail
REIT
China
GRA:
535,279
Link
Retail
REIT
HK
IFA:
1,016,149
Fortune
Retail
REIT
HK
CPNRF
PFPO
Lotus
Tesco
Asset value
(LC)
Tenant mix
(by GRI)
Rent
structure
Weighted Avg
Lease to Expiry
Master lease:24%
Fashion:24%
Misc:18%
Restaurant: 12%
Others: 22%
Master lease,
base plus
turnover rent
10.3 yrs
S$8,170m
F&B: 27.3%
Fashion: 13.6%
Beauty & health: 9%
Svcs: 6.7%
Leisure/Ent: 6.1%
Others: 57.3%
Base plus
step up and
turnover rent
na
Base: 0.25% of
AUM
Performance:
2.85% of gross
revenue
Capitaland
S$1,697m
Food & rests:29.8%
Fashion: 25.1%
Svcs/Education:8.6%
Beauty: 8.2%
Others: 28.3%
Base plus
step up and
turnover rent
1.92 yrs
Base: 0.3% of
AUM
Performance: 5%
of NPI
F&N
RMB7,271m Dept store & supermkt: Base plus
turnover rent
(S$1,479.8m) 30.1%
Fashion: 25.9%
F&B: 16.1%
Others: 27.9%
5.8 yrs
Base: 0.25% of Capitaland
AUM
Performance: 4%
of NPI
Base plus
turnover rent
4.3 yrs
na
GRA:
227,190
HK19,268m F&B: 22%
Base plus
Banking & real estate: turnover rent
21%
Svcs & education: 21%
3.5 yrs
Base: 0.3% of
AUM
Performance: 3%
of NPI
Thailand
191,564
Bt18,688m
na
PFPO
Thailand
231,960
Bt17,643m
Hypermkt: 53%
F&B: 14%
Ent: 11%
Others: 22%
JRF
REIT
Japan
2,936,425 JPY657,000m
Frontier
REIT
Japan
1,215,797 JPY237,000m
HK76,672m F&B: 25%
Supermkt & food:
24%
Base plus
step up, Base
plus turnover
Base plus
step up, Base
plus turnover
na
na
na
7.9 yrs
na
na
12.3 yrs
na
Trust Fee
structure
Sponsor/
Strategic
Partner
Croesus
Base: 0.6% of
AUM (for AUM Grp, Daiwa
House,
<JPY83m, 0.5%
for AUM> JPY83m) Marubeni
Performance: 3%
of NPI
Na (ex-govt
owned
shpg
centres)
Cheung
Kong
Base: 0.3% of NAV Central
Pattana
Performance
Group
2.35% of NPI
Base: 0.16% of
Ek-Chai
NAV
Distn Sys
Co Ltd
(Tesco
Lotus)
1% of AUM
Mitsubushi
Est
1% of AUM
Mitsui
Fudosan
Source: Trustee-Manager, Various company releases
Page 31
Company Focus
Margins Trend
Income Statement (JPY m)
FY Jun
JPY m
2014F
2015F
5,027
5,100
2,500
(1,832)
(1,753)
2,000
Net Property Income
3,195
3,347
Other Operating expenses
(547)
(556)
Gross revenue
Property expenses
Other Non Opg (Exp)/Inc
0
0
(443)
(443)
0
0
Net Income
2,205
2,348
Tax
Net Interest (Exp)/Inc
Exceptional Gain/(Loss)
(252)
(268)
Minority Interest
0
0
Preference Dividend
0
0
Net Income After Tax
1,953
2,080
Total Return
3,225
2,080
Non-tax deductible Items
562
543
Net Inc available for Dist.
2,516
2,623
Revenue Gth (%)
nm
1.4
N Property Inc Gth (%)
nm
4.7
Net Inc Gth (%)
nm
6.5
100.0
100.0
Net Income Margins (%)
63.6
38.9
65.6
40.8
Dist to revenue (%)
50.0
51.4
Managers & Trustee’s fees to
sales %)
10.9
10.9
ROAE (%)
12.5
6.7
ROA (%)
6.7
3.5
ROCE (%)
8.5
4.5
Int. Cover (x)
6.0
6.3
Growth & Ratio
Dist. Payout Ratio (%)
Net Prop Inc Margins (%)
Page 32
3,000
70.4%
68.4%
66.4%
1,500
64.4%
1,000
62.4%
500
60.4%
0
2014F
Net Property Income
2015F
Net Property Income Margin %
Gross revenue growth
expected largely from
Mallage Shobu post rental
renewals
Company Focus
Balance Sheet (JPY m)
FY Jun
Aggregate Leverage
2014F
2015F
54,213
54,332
Other LT Assets
1,928
1,928
Cash & ST Invts
1,344
1,037
35.0%
0
0
30.0%
1,226
1,244
25.0%
0
0
20.0%
58,711
58,541
Investment Properties
Inventory
Debtors
Other Current Assets
Total Assets
ST Debt
0
0
Creditor
42
43
Other Current Liab
LT Debt
Other LT Liabilities
Unit holders’ funds
Minority Interests
Total Funds & Liabilities
Non-Cash Wkg. Capital
Net Cash/(Debt)
252
268
25,285
25,285
1,887
1,887
31,245
31,059
0
0
58,711
58,541
932
933
(23,941)
(24,248)
8.7
7.3
45.0%
40.0%
2014F
2015F
Ratio
Current Ratio (x)
Quick Ratio (x)
Aggregate Leverage (%)
8.7
7.3
43.1
43.2
Page 33
Company Focus
Cash Flow Statement (JPY m)
FY Jun
Distribution Paid / Net Operating CF
2014F
2015F
Pre-Tax Income
2,205
2,348
Dep. & Amort.
0
0
0.9
(269)
(252)
0.8
0
0
Chg in Wkg.Cap.
191
(17)
0.5
Other Operating CF
353
357
0.4
Net Operating CF
2,480
2,436
Net Invt in Properties
Tax Paid
Associates &JV Inc/(Loss)
(491)
(120)
Other Invts (net)
0
0
Invts in Assoc. & JV
0
0
Div from Assoc. & JVs
0
0
Other Investing CF
Net Investing CF
Distribution Paid
0
0
(491)
(120)
(2,516)
(2,623)
Chg in Gross Debt
0
0
New units issued
0
0
Other Financing CF
0
0
(2,516)
(2,623)
(526)
(307)
Net Financing CF
Chg in Cash
Page 34
1.1
1.0
0.7
0.6
2014F
2015F
Company Focus
DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends
DBS Vickers Research is available on the following electronic platforms: DBS Vickers (www.dbsvresearch.com); Thomson
(www.thomson.com/financial); Factset (www.factset.com); Reuters (www.rbr.reuters.com); Capital IQ (www.capitaliq.com) and Bloomberg
(DBSR GO). For access, please contact your DBSV salesperson.
GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Vickers Research (Singapore) Pte Ltd ("DBSVR"), a direct wholly-owned subsidiary of DBS Vickers Securities
(Singapore) Pte Ltd ("DBSVS") and an indirect wholly-owned subsidiary of DBS Vickers Securities Holdings Pte Ltd ("DBSVH"). This report is
intended for clients of DBSV Group only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any
means or (ii) redistributed without the prior written consent of DBSVR. It is being distributed in the United States by DBSV US, which accepts
responsibility for its contents. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should
contact DBS Vickers Securities (USA) Inc (“DBSVUSA”) directly and not its affiliate.
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to
DBSVR, DBSVS, and/or DBSVH) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed
are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document
does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document
is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain
separate independent legal or financial advice. DBSVR accepts no liability whatsoever for any direct, indirect and/or consequential loss
(including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in
relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. DBSVH is a
wholly-owned subsidiary of DBS Bank Ltd. DBS Bank Ltd along with its affiliates and/or persons associated with any of them may from time to
time have interests in the securities mentioned in this document. DBSVR, DBSVS, DBS Bank Ltd and their associates, their directors, and/or
employees may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking,
investment banking and other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there
can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or
condensed and it may not contain all material information concerning the company (or companies) referred to in this report.
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on
which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from
actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO
BE RELIED UPON as a representation and/or warranty by DBSVR, DBSVS and/or DBSVH (and/or any persons associated with the aforesaid
entities), that:
(a)
(b)
such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
assessments stated therein.
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)
mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to
the commodity referred to in this report.
DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research
department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US
persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any
security discussed in this document should contact DBSVUSA exclusively.
ANALYST CERTIFICATION
The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her
compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 28 Jun
2013, the analyst and his / her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities
recommended in this report (“interest” includes direct or indirect ownership of securities, directorships and trustee positions).
Page 35
Company Focus
COMPANY-SPECIFIC / REGULATORY DISCLOSURES
DBS Vickers Securities (Singapore) Pte Ltd and its subsidiaries do not have a proprietary position in the company mentioned as
1.
of 26 Jun 2013.
DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBS Vickers Securities (USA) Inc ("DBSVUSA"), a U.S.-registered brokerdealer, may beneficially own a total of 1% or more of any class of common equity securities of Perennial China Retail Trust,
Starhill Global REIT, Mapletree Greater China Commercial Trust, Cache Logistics Trust, Ascott Residence Trust, Far East
Hospitality Trust, CDL HT as of 28 Jun 2013.
2.
DBSVHK, DBSVUSA, DBS Bank Ltd and/or other affiliates beneficially own a total of 1% or more of any class of common
equity securities of Fortune Real Estate Investment Trust (778 HK) mentioned in this document as of the latest available date of
the updated information.
3.
Compensation for investment banking services:
(1)
DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA have received compensation, within the past 12 months,
and within the next 3 months receive or intends to seek compensation for investment banking services from IGB REIT,
Perennial China Retail Trust, Mapletree Commercial Trust, Mapletree Greater China Commercial Trust, Ascendas India
Trust, Mapletree Logistics Trust, Ascott Residence Trust, Far East Hospitality Trust, Religare Health Trust.
(2)
DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment
banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further
information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed
in this document should contact DBSVUSA exclusively.
RESTRICTIONS ON DISTRIBUTION
General
This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident
of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use
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Australia
This report is being distributed in Australia by DBSVR and DBSVS, which are exempted from the requirement to hold
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This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by
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Dubai/
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Other jurisdictions
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rd
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Tel. 65-6327 2288
Page 36
Company Focus
Company Regn. No. 198600295W
Page 37

Croesus Retail Trust

Transcription

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