Analysts from Maybank Kim Eng, CGS-CIMB Research and RHB Group Research have had mixed responses to CapitaLand Integrated Commercial Trust’s (CICT) move to acquire two office buildings in Sydney, Australia for A$330.7 million ($330.7 million).
The acquisition marks CICT’s maiden foray into the country.
Following the deal announcement, Maybank Kim Eng has kept its “buy” rating for CICT with an unchanged target price of $2.55. CGS-CIMB reiterated its “add” call with a slight increase in target price from $2.56 to $2.57, while RHB kept its “neutral” rating and target price of $2.20.
See: CICT acquires two Grade A office buildings in Sydney for $330.7 mil; this is the trust's first inroad into Australia
For Maybank Kim Eng analyst Chua Su Tye, the distribution per unit (DPU) accretive transaction is a positive development for the trust. “We see favourable growth fundamentals, as its assets under management (AUM) rises 3% to $22.4 billion, with overseas assets growing to 7%, even as management maintains its Singapore core,” he says in a Dec 6 research note.
Chua also points out that the two properties offer a combined net property income (NPI) yield of 5.2%.
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He has kept his forecasts for CICT unchanged, pending completion of the transaction in 1Q2022. For now, he notes that valuations are “compelling”, with CICT trading at one time book value while its FY2022 ending December dividend yield is estimated at 5.6%.
CGS-CIMB analysts Lock Mun Yee and Eing Kar Mei are also positive on the acquisition, noting that the deal further boosts CICT’s portfolio diversification.
“The purchase will enable CICT to leverage Sydney’s rejuvenation initiatives, in tandem with the city’s aim to become a leading innovation and technology hub in the region,” they remark in a Dec 3 research note.
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They are also sanguine on the DPU uplift of 3.1% as well as the book value accretion of 2.6% resulting from the deal.
Lock and Eing have tweaked their FY2021 DPU forecast slightly while raising FY2022 to FY2023 DPU estimates to factor in the acquisition. This translated to a marginal increase in their target price for CICT from $2.56 to $2.57.
“We believe CICT is well-placed to benefit from a macro recovery given its diversified and stable earnings profile,” they add.
Meanwhile, RHB’s Vijay Natarajan says he’s neutral on the deal. “While the acquisition is yield-accretive, it comes with considerable near-term lease expiries and income support,” he comments in a Dec 6 research note.
Natarajan points out that while the headline yield looks attractive, this includes income support of $7 million and tenant incentives that will be borne by the vendor. Additionally, one of the properties, located on 66 Goulburn Street, has a leasehold tenure with a remaining balance of 95 years, and nearly one-third of leases will expire in FY2022.
As at 4.12pm, shares in CICT are down 1 cent or 0.48% lower at $2.06.
Cover picture of 66 Goulburn Street: CICT