Croesus Retail Trust

Croesus Retail Trust: 4QFY14 distributable income and DPU both beat forecast by 2%, at ¥707m and 2¢ respectively, attributed to lower property expenses. Gross revenue of ¥1,584m missed forecasts by 1%, mainly from lower than expected rental income from Mallage Shobu, its only property (of six) with a variable rent component, dragged by the country-wide decline in consumer consumption due to the consumption tax rate hike to 8% (from 5%) in Apr, conducted by the Abe administration. Shopper traffic and tenant sales benefitted from the Trust's promotional activities and the rise in consumer spending, just before the tax hike. Meanwhile, net property income of ¥1,020m beat IPO forecast by 3%, from cost savings on lower property management and repair expenses. Portfolio occupancy stood at 99.4%, with 79% and 91% of FY15 and FY16 rental rates locked in. Leverage ratio dropped 1.8ppt to 51.7%, on average interest cost of 2.13% and debt tenor of 3.7 years. This leaves the trust additional debt headroom of ¥16.2b for additional acquisitions, based on 60% leverage. Coming up in Nov'14, management expects favorable rental reversion at Mallage Shobu, with 148 of 242 leases expiring, as the prior rates were entered in 2008 on not so buoyant market conditions. In the longer term, counter offers an exposure to the recovery in the Japanese consumer market, underpinned by firming confidence in the country's economy. At $1.02, Croesus Retail Trust is valued at 1.1x P/B and FY15 forecast DPU yield of 7.3%.