SINGAPORE (May 18): CGS-CIMB Securities and RHB Research have upgraded their respective recommendations on CapitaLand Commercial Trust (CCT), after the REIT on Thursday marked its maiden overseas entry with the acquisition of a 94.9% stake in Frankfurt office property Gallileo.
The freehold Grade A property, valued at €356 million ($569.6 million), is located in the prime Central Business District (CBD), also known as the Banking District, in the central German city recognised as a major financial hub.
See: CapitaLand Commercial Trust acquires 94.9% stake in $569.6 mil Frankfurt office property Gallileo
“The acquisition is DPU-accretive and strengthens its portfolio with a longer WALE, higher occupancy rate and freehold land tenure,” says RHB analyst Vijay Natarajan in a report on Friday.
“However, investors’ reactions may be mixed, as the acquisition comes at a time when Singapore’s office market is recovering,” he cautions.
RHB is upgrading CCT to “neutral” with a slightly higher target price of $1.65, raised from “sell” with a target price of $1.63 previously.
Meanwhile, CGS-CIMB is upgrading CCT to “add” with a marginally higher target price of $1.94, from “hold” at $1.93 previously.
“We raise our FY18-20F DPU estimates by 0.4-1.4% to factor in the new contributions,” says lead analyst Lock Mun Yee in a report on Thursday.
“Not only is the property currently under-rented, there is also room for further yield improvements given the Commerzbank lease is adjusted based on inflation index every 2 years. This will provide more forward earnings growth,” she says.
In addition, Lock notes that CCT intends to hedge its overseas income on a 4-quarter rolling basis with no near-term refinancing risks.
“CCT’s share price had weakened over the past week and now offers close to 18% total return,” she adds.
As at 11.21am, units of CCT are trading flat at $1.72. According to CGS-CIMB valuations, this implies a price-to-earnings multiplier of 19.3 times and a dividend yield of 5.2% for FY18.
