Foray into Australia

■ CICT has announced the acquisition of two Sydney office properties.
■ Deal further boosts portfolio diversification, in addition to providing DPU and BV uplift.
■ Reiterate Add rating with a slightly higher DDM-based TP of S$2.57.

CICT buys two Sydney office properties

CICT has announced the acquisition of two office properties in Australia, marking its first foray into the country. CICT is acquiring the units in two trusts that hold 66 Goulburn St and 100 Arthur St. The estimated purchase consideration of A$330.7m is based on the adjusted net asset value of the trusts, taking into account the agreed property value of A$672m, adjusted for other assets and liabilities. The two properties have a total net lettable area of 49,969 sqm with an occupancy rate of between 63.2%-95.3% and weighted average lease expiry of 2.7-4 years. The transaction is expected to be completed in 1Q22.

Deal further diversifies CICT’s portfolio and income

The acquisitions further diversify CICT’s portfolio geography and income, with overseas assets in Germany and Australia, making up 7% of the expanded portfolio AUM of S$22.4bn. The purchase is expected to generate a combined net yield of 5.2%, inclusive of an A$7m rental guarantee. 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. 66 Goulburn St is located at the southern edge of the Midtown Precinct of Sydney CBD and is anticipated to benefit from its close proximity to Sydney Tech Central and the rejuvenation of the southern end of the Sydney CBD. 100 Arthur St, located in the eastern quadrant of North Sydney CBD, is situated near the New Metro Station and the upcoming Victoria Cross Station, and is expected to benefit from the transformation of North Sydney as part of the Harbour CBD. In the longer run, plans to lift 100 Arthur St’s current 4 Star NABERS Energy rating to a 5 Star rating should also boost CICT’s ESG initiatives.

Acquisition to be funded by debt and divestment proceeds

CICT will fund the total acquisition outlay of S$381m through a combination of A$ denominated debt and proceeds from the divestment of its 50% stake in One George St. As such, gearing is expected to remain stable at c.41%. In terms of financial impact, management indicated that the proforma DPU accretion is estimated to be 3.1% while the uplift to BV is 2.6%. CICT indicated that it would continue to explore acquisition opportunities in Singapore and overseas and maintains its targeted overseas exposure at
20% of total AUM.

Reiterate Add rating

We tweak down our FY21F DPU slightly and raise our FY22-23F DPUs by 1.54-1.86% to factor in the acquisition. Our DDM-based TP is accordingly increased to S$2.57. We believe CICT is well-placed to benefit from a macro recovery given its diversified and stable earnings profile. Re-rating catalysts are more clarity on asset enhancement/redevelopment plans and accretive acquisitions. Downside risks include slower-than-expected portfolio value creation and slower rental recovery outlook.