In the latest 2Q19 ended June, CCT’s distributable income rose 3.8% year-on-year to $82.4 million, as distribution per unit (DPU) grew 1.9% to 2.20 cents.
Gross revenue and net property income both edged up during the quarter, by 3.0% to $100.9 million and 0.8% to $78.4 million, respectively.
See: CapitaLand Commercial Trust declares 1.9% higher 2Q DPU to 2.20 cents on new acquisitions
Meanwhile, CCT last week raised $220 million from a private placement of some 105 million new units at $2.095 each.
See also: Bullish takes on CICT with full acquisition of CapitaSpring seen supporting higher DPU
The majority of the proceeds will be used to partially finance the acquisition of the 94.9% stake in MAC Property Company B.V. and MAC Car Park Company B.V. which holds a 100% stake in the property known as Main Airport Center (MAC) in Frankfurt, Germany.
See: CCT raises $220 mil from private placement for Frankfurt office acquisition
The €251.5 million ($387.1 million) acquisition marks CCT’s second asset acquisition in Frankfurt, and increases CCT’s overseas exposure from 5% to 8% of its portfolio property value.
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The transaction is also expected to be DPU accretive in the range of 1.0% to 2.5%, based on pro forma 1H19 DPU.
See: CCT acquires 94.9% stake in Frankfurt office for $387 mil
At the same time, CCT also plans to undertake a $45 million asset enhancement initiative (AEI) at 21 Collyer Quay, with an expected return on investment of close to 9%.
The entire building, which contributed to close to 5% of CCT’s 1H19 income, will be closed from 2Q20 to 4Q20.
CCT will also carry out a $35 million AEI at 6 Battery Road, to be carried out in phases from 1Q20 to 3Q21.
Analysts, however, are divided over the impact of CCT's Frankfurt acquisition and AEIs. Despite the improving office rental market, some observers note that the stock has already outperformed the market so far this year – and might not have enough gas in the tank to carry its upward momentum.
“We are supportive of CCT’s deepening its exposure into Frankfurt given the expected DPU accretion and projected uplift in rents in the Frankfurt market. Furthermore, the airport submarket vacancy rate is at a 10-year low of 4%, which should be supportive of rents going forward,” says DBS Group Research lead analyst Mervin Song in a flash note on July 17.
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“We also maintain our ‘buy’ call on CCT given its exposure to the rising Singapore office market and in the medium term the uplift in earnings from the proposed AEIs and MAC acquisition,” he adds.
The brokerage has an unchanged target price of $2.40 on CCT, representing an upside of more than 11%.
CGS-CIMB Research is also bullish on CCT, on the back of its “twin growth drivers” – positive rental reversion and new AEIs to enhance its portfolio.
Analyst Lock Mun Yee notes that CCT has signed new rents ranging from $9.50 to $13.50 per square foot, compared to expiring rents of $9.10 to $11.70 psf.
“CCT’s share price has outperformed the broader market year-to-date,” Lock says. “The stock currently offers an absolute return of 7.5%.”
The brokerage is keeping its “add” call on CCT with an unchanged target price of $2.25.
Over at RHB Group Research, analyst Vijay Natarajan is positive on CCT’s acquisition of MAC, but says the upside is already priced in.
“We believe positives are largely priced in with the stock trading at 1.2x P/BV,” Natarajan says.
RHB is keeping its “neutral” call on CCT, but raising its target price to $1.98 from $1.90 previously.
“Our higher target price mainly reflects the lowering of our COE assumptions by 20 basis points to 7% to better reflect the prolonged low interest rate environment,” Natarajan says.
Meanwhile, UOB Kay Hian is downgrading CCT to “hold” as its share price has already outperformed the market.
“CCT is the bellwether for office REITs. However, the stock has already outperformed,” says lead analyst Jonathan Koh.
Koh cautions that the upside is limited for CCT, and that its share price could consolidate in the near term.
The brokerage is raising its target price marginally to $2.17, from $2.16 previously, with a recommended entry price of $1.98.
As at 11.41am, units in CCT are trading 1 cent down at $2.14. According to DBS valuations, this implies an estimated price-to-earnings (PE) ratio of 26.4 times and a distribution yield of 4.1% for FY19F.
