Money Talk: Croesus Retail Trust, Frasers Centrepoint Trust, Suntec Reit

SINGAPORE - Stay up to date on market chatter with our picks of the latest broker research reports, compiled by The Straits Times Money Desk.

1. Croesus Retail Trust

Broker: OSK-DMG

Japan is the 3rd biggest retail market in the world with 127 million consumers contributing an average of US$54,000 per household. Croesus Retail Trust, with a 8 per cent dividend yield and close to 100 per cent occupancy rate, is the first Asia-Pacific retail business trust and the only proxy on the Singapore Exchange into the Japanese retail scene with six Japanese retail mall assets.

With "Abenomics" policies in place to create inflation and boost the Japanese economy, Croesus Retail Trust is poised to be one of the key beneficiaries as traffic flow at its malls has been increasing while capitalisation rates for its existing malls and other malls in Japan have been decreasing.

Its portfolio has a weighted average lease expiry of 10.2 years, which ensures long-term stability. Moreover, all its six retail malls are conveniently accessible via major highways, rail stations, and arterial roads or in suburban regions with high population density. This helps its malls to attract steady traffic flow and maintain demand for its properties.

Compared to its peers, particularly Japanese Reits in Japan, Croesus Retail Trust offers a far superior dividend yield of more than 8 per cent at the current share price vs 3 to 5 per cent for the majority of its Japanese peers

We initiate coverage with a Buy and a target price of $1.15.

2. Frasers Centrepoint Trust (FCT)

Broker: CIMB

FCT's Q3 and nine-month results were largely in line, with distributable profit for the first nine months at 75 per cent of our full-year forecast. Gross revenue and net property income were up 2 to 3 per cent, as the better performance at key malls more than offset the weak performance at Bedok Point.

FCT remains our top pick in the retail Reits space as we believe it is strong operationally with growth expected from both rental reversions and contributions from Changi City Point (CCP).

We expect FY2015's revenue to grow by 14 per cent year-on-year, largely from the CCP acquisition. Additionally, we believe organic growth will be driven by the 39 per cent and 27 per cent of leases (by gross rental income) expiring in FY2015 and FY2016, with the majority of the expiring leases emanating from Causeway Point, Northpoint and CCP.

We maintain our Add rating and raise our target price slightly to $2.18 as we roll forward our estimates. We lift our FY2014-FY2015 earnings per share by 0.6 to 1 per cent as we factor in lower interest costs.

3. Suntec Reit

Broker: OCBC

Suntec Reit announced Q2 distribution per unit (DPU) of 2.266 cents, up marginally by 0.8 per cent year-on-year.

However, we note that only $5.0 million in capital distribution was made in Q2, as opposed to $7.8 million a year ago. Excluding the capital payout, DPU would have risen 8.5 per cent year-on-year.

We note that Suntec Reit's office segment continued to gain traction in Q2, posting 4.7 per cent growth in revenue on the back of positive rental reversions. Looking ahead, Suntec Reit remains positive on its office portfolio performance. It also reiterated that the remaking of Suntec City is on track for completion by end-2014, and that the return on investment projection of 10.1 per cent remains intact.

We now tweak our assumptions to factor in stronger performance upon completion of asset enhancement initiatives at Suntec City. Consequently, our fair value is raised to $1.96 from $1.85 previously. Maintain Buy.