SINGAPORE (Aug 29): Analysts are staying positive on Croesus Retail Trust (CRT) even after the real-estate investment trust bought out its trustee-manager for JPY 4.1 billion ($54.6 million).

DBS Group research is maintaining its “buy” recommendation with a higher target price of 99 cents from 90 cents previously. Analysts Mervin Song and Derek Tan noted that the move to internal management was met with “dissatisfaction from some unitholders with the price paid to buy out CRT’s trustee-manager and concerns over the large upfront cash payment to the current management team for their stake in the trustee-manager”, but believe that the perceived alignment between the interests of the management and its unitholders will continue to drive CRT’s share price up.

According to them, as CRT would be without an external trustee-manager, there would be one less obstacle to a potential takeover by a Japan-based REIT, a speculation according to some market watchers as the REIT continues to trade at a huge discount to its net asset value and offers consistently high yields.

Elsewhere, CIMB’s Lock Mun Yee estimates that the internalisation of the trustee-manager could provide the REIT with annual savings of about JPY 300 million and lift distributions per unit by 1% from FY2017. At the same time, she believes that growth for the group could continue to come from the four properties it acquired in FY16 for JPY 17.4 billion.  

For 4QFY16, revenue rose 34.5% to JPY 2.7 billion and distributable income rose 22% to JPY 1.1 billion from its new acquisitions. However, Lock pointed out that DPU rose slower at 6.9% to 1.7 cents after a rights issue and private placement to fund the purchases.

That said, Lock maintained her “add” rating for CRT with an unchanged target price of 98 cents, as she forecasts an additional JPY 1.2 billion full-year contribution from the new properties, which would boost FY17 results.

Furthermore, an additional 12.6% and 9.1% of gross rental income are expected to be renewed in FY17 and FY18 respectively, while potential asset management initiatives at Torius could also boost returns in the long run, adds Lock.

According to RHB’s Jarrick Seet, CRT could also benefit from the macro economic outlook in the longer term. “Japan’s negative interest rate environment will likely continue to bring CRT’s average cost of debt down and generate substantial cost savings when it refinance its debt," says Seet.

"Furthermore, CRT has an average forex hedging rate of SGD/JPY83.57 for FY17F and SGD/JPY76.39 for FY18F, representing a 10% DPU increase just from forex hedges alone,” he adds, maintaining his "buy' recommendation with a target price of 93 cents.

Shares of CRT are trading at 85.5 cents.