Brokers' take: Analysts mostly positive on CICT's acquisition of office on Robinson Rd

ANALYSTS are generally positive on CapitaLand Integrated Commercial Trust (CICT)'s acquisition of a Grade-A office building at 79 Robinson Road for S$1.3 billion.

On Friday (Mar 25), CICT and CapitaLand Open End Real Estate Fund (Coref) said they had entered into an agreement to purchase the property, which will see them acquiring 70 per cent and 30 per cent respectively of the shares of the property holding company Southernwood Property.

UOB Kay Hian (UOBKH) analyst Jonathan Koh said the building's net property income yield of 4 per cent is attractive for Grade A office properties in prime locations.

He is also positive on the property's close proximity to 3 MRT stations - Tanjong Pagar, Prince Edward and Shenton Way - and its diversified blue chip tenant base, noting that it stands to gain from the easing of Covid-19 restrictions in Singapore.

In a report on Monday, the analyst raised his target price on CICT to S$2.50 from S$2.45, and maintained his "buy" call. Koh also raised his FY2023 distribution per unit (DPU) forecast for CICT by 2 per cent to factor in the acquisition.

Maybank analyst Chua Su Tye is also positive on the deal amid an upside in the office rental segment due to tight supply; he forecasts Grade A office rents will rise 7 per cent on year by the end of 2022, or 12 per cent over the next 2 years.

The analyst maintained his "buy" call and target price of S$2.55 on CICT in a report on Sunday, noting that CICT's valuations are competing at 5.2 per cent the brokerage's estimates for its FY2022 dividend yield and 1.1 times its price to book ratio.

Chua expects improving fundamentals at CICT, noting that CICT's management may be eyeing a larger acquisition in Singapore from its sponsor, which could potentially be timed with an equity fund raising.

UOBKH's Koh also said the acquisition signals potential future collaborations between CICT and Coref - a regional open-end fund providing long-term strategic exposure to a diversified portfolio of institutional grade income-producing assets in developed markets within the Asia Pacific region.

Meanwhile, RHB analyst Vijay Natarajan is also positive on the deal, although he said the acquisition price is slightly on the higher side.

Nevertheless, he said there is room for upside potential, noting that the property comes with a long weighted average lease to expiry of 5.8 years and rent step-ups for the majority of leases, while its current occupancy of 92.9 per cent is likely able to benefit from a continued positive demand in the office sector.

In a report on Monday, Natarajan raised his target price on CICT to S$2.35 from S$2.20, after raising his FY2022 to FY2024 DPU estimates by 2 to 3 per cent to account for the acquisition.

The analyst, however, downgraded the counter to a "neutral" call from "buy", as it is likely nearing fair value. Natarajan said the positives have mostly been priced in, after share prices have risen around 15 per cent since January.

He also noted the likely candidate for CICT's next Singapore acquisition could be a remaining stake in CapitaSpring, of which CICT owns a 45 per cent stake in.

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