My last coverage for CCT was done back in Jan when I reviewed their FY15 results. You can view them here.
On Friday, the market went down more and I managed to pick up more CCT at a price of $1.38 for 7,000 shares. My first buy for CCT was at an average price of $1.33, so this is another average up decision. Together with the existing holding, I have now hold 15,000 shares of CCT in my portfolio.
As much as we've been hearing about the weak outlook of the office sector, especially for Grade A offices in the CBD area as a result of oversupply and weak economy, CCT continues to defy the odds by having a committed occupancy of 98.1% for Q1 2016. One only has to look at their past records since inception to understand how well these reits are managed.
Of course, the rental itself is the key variable factor that is going to swing, but that's like any other business. They undergo a cycle of boom and gloom but they'll always come back when the economy picks up.
In Q1, rental rate dipped about 4.8% to $9.90 and we can expect things to come down even more, with the GFC support of $8 probably the bottom in the mid term, given that the grade B rental rate are holding up better these days at about $7.
The Reit has one of the lowest gearing at 30% amongst all other Reits at a net property yield of around 3.8% so if they gear this up further, we can expect the dividend yield to inch closer to the 7% like Keppel Reit, who has above 40% gearing.
There is a potential acquisition pipeline to acquire the rest of the Capitagreen by 2017 so I think we should be seeing some corporate movement pretty shortly. My take is perhaps they will fund the acquisition via borrowings and placement. I don't think they require a lot of funds to do the rights issue at this point.
To me, this is a good opportunity to own a well managed blue chip reit giving investors a 6.2% levered yield at 30% gearing while awaiting for the sector to recover. I think this has the potential to be a strong long term yield play + capital gain.
*Vested with 15,000 shares of CCT as of writing.