Brokers' take: CGS-CIMB raises target price of CICT to S$2.57 after Sydney acquisitions

Published Mon, Dec 6, 2021 · 03:40 AM

CapitaLand Integrated Commercial Trust's (CICT) C38U foray into Australia through its acquisition of 2 Sydney office buildings for A$330.7 million (S$317.6 million) is expected to boost portfolio diversification and enhance income resilience, noted analysts.

CGS-CIMB on Friday (Dec 3) raised its target price on CICT to S$2.57 from S$2.56. It has also reiterated its "add" call on the real estate investment trust (Reit).

The target price of S$2.57 implies an upside of 25.4 per cent from CICT's closing price of S$2.05 on Monday (Dec 6). The counter was trading 0.49 per cent or S$0.01 lower at the time.

CGS-CIMB expects the move to boost portfolio diversification, as well as provide an uplift to the Reit's distribution per unit (DPU) and adjusted net asset value per unit.

In a research note dated Dec 3, the research team cut its estimates for CICT's FY2021 DPU slightly, while raising its DPU estimates for FY2022-2023 by 1.54 to 1.86 per cent to factor in the acquisition.

"We believe CICT is well-placed to benefit from a macro recovery given its diversified and stable earnings profile," CGS-CIMB said.

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RHB has adjusted its DPU estimates for CICT by 0 to 1 per cent for FY2021-2023, after factoring in the Reit's acquisitions and divestments. RHB has maintained "neutral" on CICT, with a target price of S$2.22, which represents an upside of 8.3 per cent.

RHB analyst Vijay Natarajan noted that while the latest acquisitions are yield accretive, they come with considerable near-term lease expiries and income support.

Meanwhile, Maybank Kim Eng (MKE) expects DPU to improve by 20 per cent on the year for FY2021, and 6 per cent year on year for FY2022 due to lower rental rebates to tenants and lower borrowing costs for CICT.

MKE also projects negative retail rental reversions to moderate in FY2021-2022 due to stronger tenant sales, especially for suburban malls which have been more resilient. Meanwhile, net property income contributions from office properties will recover in 2022.

MKE said that CICT's valuations are compelling for now, with a 5.6 per cent FY2022 dividend yield and a price-to-book ratio of 1 time, versus its history and peers. It has also maintained "buy" on the counter, with a target price of S$2.55, representing an upside of 24.4 per cent.

The office assets at 66 Goulburn Street and 100 Arthur Street will enable CICT to leverage Sydney's rejuvenation initiatives, suggesting longer-term rental upside, both CGS-CIMB and MKE noted.

Plans to raise 100 Arthur Street's current 4-star energy rating under the National Australian Built Environment Rating System to a 5-star rating should also boost CICT's environmental, social and corporate governance initiatives in the long term, CGS-CIMB added.

MKE analyst Chua Su Tye expects an absence of new supply till Q3 2022 in North Sydney to cushion occupancies and rents in the near term for CICT.

That being said, while CICT's management expects deal flow to pick up from its Australian market entry, MKE's research team is "less sanguine" given the Reit's slow pace to scale its assets under management in Germany.

CICT, when it was known as CapitaLand Commercial Trust, acquired a majority stake in a prime Frankfurt property known as Gallileo for 342.7 million euros (S$548.3 million) in 2018. It also acquired a majority stake in a Frankfurt multi-tenanted office building called Main Airport Center, for 133.4 million euros in 2019.

The Sydney acquisitions are expected to be completed in Q1 2022. Post-acquisition, CICT's overall portfolio property value will increase by 3 per cent to S$22.4 billion. Some 93 per cent of the enlarged portfolio by property value will be based in Singapore, with 4 per cent in Germany and 3 per cent in Australia.

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