(BUY, SGD0.74, TP: SGD0.81)
Cambridge Industrial Trust (CREIT) declared a 2Q13 distribution per unit (DPU) of 1.24 cents (+5.1% y-o-y), in line with our FY13 forecast. Revenue for the quarter jumped 14.1% y-o-y to SGD24.6m while net property income rose 13.4% y-o-y to SGD20.8m. In view of its sturdy growth profile over the next few years, we maintain BUY on CREIT, with a higher DDM-based (COE:8.6%; TGR:2.0%) TP of SGD0.81
Proactive reshuffling of portfolio. Since the start of the year, CREIT has completed four acquisitions, divested 30 Tuas Road and completed both the asset enhancement initiatives (AEIs) at 88 International Road and 4/6 Clementi Loop. Meanwhile, the acquisition of Teban Gardens Crescent (with an initial yield of 8.2%), sale of 63 Hillview Avenue, AEI at 21B Senoko Loop and development at 3 Pioneer Sector 3 are scheduled for completion in 4Q13, 3Q13, 1Q15 and 4Q14 respectively. This pro-active reshuffling of assets has beefed up CREIT’s portfolio as well as benefitted unitholders with a higher dividend payout and brighter outlook.
Proposed sale of 63 Hillview Avenue. CREIT recently announced the divestment of its holdings at 63 Hillview Ave for SGD140.8m (28% higher than book value). This is a positive since the proceeds could be invested in higher-yielding assets versus the 2.3% (based on the selling price) yield from this property. Although it may be difficult to buy yield-accretive assets these days, we believe it could still be yield accretive for unitholders if the entire proceeds are used to trim outstanding debt, which currently carry an all-in cost of c. 4%. The company may also lower its overall gearing to c. 27.7% if it utilizes all of the proceeds to repay borrowings.
Room to trim debt cost. During the results briefing, Management said it is currently in advanced talks with various banks to refinance debts amounting to SGD308m due next year. After divesting its property at Hillview and ending up with SGD140m cash in hand, we believe CREIT will be in a strong position to negotiate for a better rate and possibly lower its all-in interest cost to < 4%.
Maintain BUY, TP higher at SGD0.81. Due to its strengthening fundamentals and robust pipeline of assets available for future AEIs (estimated at 15%-20% of its total portfolio, excluding those currently undergoing works), we continue to like CREIT. Maintain BUY, at a higher TP of SGD0.81.
Publish date: 25/07/13