PRICE as of 8 Jul 2013 SGD 0.71
PRICE TARGET SGD 0.82
Divestment unlocks value and frees up capital for growth
Cambridge Industrial Trust (CREIT) announced the sale of its stake in 63 Hillview Avenue for SGD 141mn.
We believe the sale is a positive surprise for the market.
We continue to expect CREIT to use the sale proceeds for acquisitions and redevelopments at c.7% NPI yield.
We estimate the recycling exercise to be 6% accretive and have accounted for this in our price target.
Overseas acquisitions could potentially provide higher asset yields, but would expose CREIT to currency risks.
Reiterate our Outperform rating and PT of SGD 0.82.
SGD 141mn divestment in line with our expectations: CREIT announced the sale of its 69.4% stake in 63 Hillview Avenue on 5 July 2013, at a 28% premium to its book value of SGD 110mn (as of 31 December 2012). The sale price of SGD 140.8mn is in line with our expectation of SGD 143mn, implying an NPI yield of 2.3% for 2012. The property is a freehold strata-titled industrial building with residential zoning. We expect the buyer, a joint-venture between Enviro-Hub Holdings (ENVH SP, NR) and BS Capital (unlisted), to redevelop the building into residential apartments through an en-bloc process.
A positive surprise; an opportunity for growth in 2H13: We believe the sale is a positive surprise for the market. We continue to expect CREIT to use the sale proceeds to acquire assets and also redevelop existing assets within its portfolio. Assuming these additions could be done at an average NPI yield of 7.0%, we estimate the capital recycling exercise will be 6% accretive for CREIT. We believe CREIT could consider overseas acquisitions that could potentially provide higher asset yields, but would expose it to currency risks. If the manager simply repays debt without redeployment, we estimate the look-through leverage will fall to c.31% from 38% currently.
Redevelopment of 3 Pioneer Sector 3: CREIT has announced just one new project YTD, the SGD 45mn redevelopment of 3 Pioneer Sector 3. The redevelopment was announced in May and will double GFA at the asset to 717,000sf, increasing the property’s plot ratio to 1.4 from 0.81. Management expects a yield on cost of 9.2%.
Reiterate Outperform rating: CREIT offers an 8.7% 2014E DPU yield and a strong 2013-16E CAGR of 5%. The stock remains our top pick among small-cap industrial REITs
Publish date: 09/07/13