News Analysis: First Christmas Down Under

  • CICT makes its first foray into Australia with the acquisition of 2 office assets from CLA for property value of A$672m (S$672m).
  • Implied NPI yield is 5.2%; NPI (ex-rental guarantee) of 4.2%. 
  • CICT kick-starts its asset recycling strategy and reinvestments proceeds into higher yielding assets for medium-term earnings growth. 
  • Maintain BUY; TP of S$2.50. 

CICT makes its first foray into Australia with the acquisition of 2 office assets in Sydney, 66 Goulburn St at Sydney CBD and 100 Arthur St at North Sydney from CapitaLand Real Estate Holdings Pte Ltd (CLA). Both the assets are valued at a total of A$672m (S$672m) with a combined implied NPI yield of 5.2%.

The acquisition will be funded by debt and the proceeds from the divestment of 50% stake in One George St amounting to c.S$344.5m. Post the acquisition, Australia assets will comprise c.4% of CICT’s portfolio, Singapore will reduce to 93% from 96% and Germany to remain the  same at 4%. The office portfolio will increase from 36% to 38%. 

Ascendas-Singbridge previously made its first foray into the commercial assets in Australia space with the acquisition of 100 Arthur St in Mar16 for more than A$315m (current valuation of A$372m is c.18% above the acquisition price). Ascendas-Singbridge subsequently acquired  66 Goulburn St in Nov17 for A$252m (current valuation of A$300m is c.19% above the acquisition price). 

 66 Goulburn St100 Arthur StCombined portfolio
Property valueA$300m (S$300m)A$372m (S$372m)A$672m (S$672m)
Purchase considerationA$158.5m (S$158.5m)A$172.2m (S$172.2m)A$330.7m (S$330.7m)
Total acquisition cost  A$381m (cash outlay A$374.3m)
NLA (sqft)246,354 (office – 243,587sqft; retail – 2,766 sqft)                                                                          291,508                                                                           537,862  
Land tenureLeasehold expiring 16 Aug 2116 (95 years remaining)Freehold 
Year of completion20042007 (major refurbishment of A$17m in 2019-2021) 
Carpark Lots53140 
WALE                                                                                 2.7                                                                                  4.0                                                                                   3.4  
Committed Occupancy95.3%62.3%78.8%
Implied NPI Yield (w rental guarantee)5.40%5.10%5.20%
Implied NPI Yield (ex rental guarantee) 3.20%4.20%
Rental Guarantee A$7m (assuming vacancy to be filled in 1 year) 
DPU accretion (based on pro forma)  3.10%
Pro Forma Gearing  41% (vs 40.5% as at 3Q21)
Green Ratings5.5 STAR NABERS Energy / 4.5 STAR NABERS Water4-STAR NABERS Energy / 4.5-STAR NABERS Water (committed to raise to 5-STAR NABERS Energy 
Top 3 tenants Property NSW (gov), Prudential Investment Company of Australia, William Buck, comprises c.45% of GRIEquifax, Kimberly Clark, Infosys comprises c.49% of GRI 
Lease expiries in FY202233.1% (13.7% in advanced negotiations)0.50%Addition to CICT’s portfolio: 0.5%
Lease expiries in FY202328.4% (3.2% in advanced negotiations)27.90%Addition to CICT’s portfolio: 0.8%
Locationlocated at the southern Sydney CBD, close to Museum and Central Railway Station, close to the proximity of the upcoming precinct for Tech Centralproximity to North Sydney station, Sydney Metro (Victoria Cross Station) 

Our Views

Kick-starting its asset recycling journey and making its first foray into Australia at implied yield of 5.2%. CICT kick-starts its asset recycling journey post the merger, divesting its 50% stake in One George St at an exit yield of 3.7% and recycled into an accretive acquisition with implied NPI yield of 5.2% by making its first foray into Australia. Given that the Australia portfolio and Germany portfolio should have quite similar contribution by size, we believe the Australia portfolio would help support CICT earnings and offset some upcoming vacancies from its Germany portfolio in the near-term, if occupancy in the Australia portfolio can be progressively filled in the next year or two. 

While the accretion and strategy looks attractive, the question is whether it is an opportune time to enter the Australia office market and after making its first investments into Europe, would CICT change its focus to Australia now? In addition, the next question could be timeline on potential acquisition of sponsor pipeline such as remaining stakes in CapitaSpring and 79 Robinson given gearing remains at 41%. 

Occupancy at Asia Square Tower 2 and Capitaspring continue to improve, lifts overhang on vacancy concerns; retail shopper traffic improve on relaxed measures. On a more positive note, along with the acquisition announcement, CICT highlights that Asia Square Tower 2 has achieved committed occupancy rate of 94.3% from 82.8% as at 3Q21, backfilling some of the vacancies previously and CapitaSpring has achieved committed occupancy of 88.3% from 83.1% as at 3Q21. The additional tenants are from the real estate services and energy & commodities sector. This lifts some of the overhang on vacancy risks concern on CICT and is music to the ears of office landlords in Singapore as supply now remains tight, supporting office rents recovery. 

Post the relaxation of allowing 5 pax dine-in from 22 Nov21, CICT’s malls are seeing higher shoppers’ traffic week-on-week especially in the downtown malls. For the month of Nov21, shoppers’ traffic to CICT’s malls was 5% above Oct21. 

Hopefully we can now go off for Christmas break in peace soon! Have a great weekend!