• 4 newly acquired malls from October 2015 drove earnings growth in 2Q17.
• Cost savings from internalization also improved earnings.
• Tenant replacement at Feeeal Asahikawa (Acq: May 2016) still ongoing.
• Bulk of debt maturing in FY17 refinanced in January 2017. Annual cost savings of JPY152mn from lower refinanced interest rates.
• We continue to favor CRT for its long WALE, good mix of master leases and variable rent components, and favorable macro environment (continuing loose monetary policies in Japan).

• 4 newly acquired malls from October 2015 drove earnings growth in 2Q17. In addition to the 4 newly acquired malls, higher variable income from better tenant sales in Mallage Shobu and early termination compensation also led to the increase in gross revenue.

• Tenant replacement at Feeeal Asahikawa still ongoing. Management has carried out tenant readjustments in the mall since acquiring it in May 2016. NPI for 2Q17 improved to an annualised NPI yield of 3.2% vs -0.1% in 1Q17 (temporarily affected by downtime and closure sales of neighbouring departmental stores). Management is still confident of achieving 5-6% NPI yield on cost as targeted during the initial purchase.

• Bulk of debt maturing in FY17 refinanced in January 2017. Annual cost savings of JPY 152mn from lower refinanced interest rates. As a result of the lower average interest rate on the refinanced debt, CRT can expect interest cost savings of c.JPY 152mn per annum. This is c.3.3% of the annualised available income for distribution for 1H17.

Investment Action:

• Maintain ACCUMULATE with an unchanged DDM-derived target price of S$0.93. With a forecasted 7.48 SG cents distribution for FY17e, this represents a c.8% dividend yield on our target price of S$0.93, which we deem as fair given its portfolio exposure.

Figure 1: CRT’s portfolio of assets with long WALE, and minimal lease expiries for FY17 and FY18

Figure 2: Tenant Readjustments at Feeeal Asahikawa

Figure 3: New Shop Openings at Mallage Shobu and Saga