Wednesday, July 10, 2013

Cambridge Industrial Trust: Moving to larger projects (DBSV)

Cambridge Industrial Trust:
HOLD S$0.73 (Downgrade from BUY);
Moving to larger projects;
Price Target : 12-Month S$ 0.78 (Prev S$ 0.93)

•Divesting Lam Soon Industrial Building at 28% above book value
•Not the optimal sale scenario but deployment of proceeds to be accretive
•TP adjusted S$0.78 as we revert to DCF valuation;  Reduce to HOLD

Divesting Lam Soon Industrial Building.  Cambridge Industrial Trust (CREIT) announced that it is proposing to divest Lam Soon Industrial Building (or 63 Hillview Avenue) for S$140.8m. The proposed selling price represents CREIT’s 69.4% stake in the strata share value of the property (97 out of 154 free freehold strata units) and is a 28% premium over the latest valued book value. The exit yield is estimated to be c2.3%. The buyer is QF Properties Pte Ltd which is a JV set up by Enviro-Hub Holdings Ltd (listed on SGX) and BS Capital, a wholly owned company of its chairman, Mr Raymond Ng.

Not the optimal sale scenario but proceeds can still be utilised accretively. After two unsuccessful lengthy enbloc sale attempts aimed at maximizing the value of the property, the manager has chosen to exit through the sale of its entire 69.4% stake to a single buyer, rather than holding on to its investment or through a strata-sale on a piecemeal basis. Despite settling for a lower selling price, the manager would be able to efficiently deploy proceeds to higher yielding sources (repay debt, which saves CREIT c3.5% p.a. or part fund its various development projects which returns c 7.5%-8.0%) compared to the c2.9% from Lam Soon Industrial Building based on its book value. In addition, we view that a strata-sale process is not optimal given that it is likely to be a lengthy process coupled with uncertainty regarding the eventual sale of its entire stake.

Downgrade to HOLD, TP S$0.78.  Our DPU/NAV estimates are revised slightly to account for the lower than projected sale value. We have also switched our valuation methodology back to DCF compared to SOTP previously where we had factored in the full potential of an enbloc sale and development of its portfolio. Our new DCF-based TP is S$0.78. We continue to like management for their ability to unlock value from their assets and believe this activity would likely continue over time. However, in the near term, we see lack of near term catalyst for outperformance in view of the execution of this sale. Stock price have held up fairly well in the recent market sell-down and given the current limited total return upside, we are cutting our call to a HOLD.

Source/Extract/Excerpts/来源/转贴/摘录: DBSV-Research,
Publish date: 08/07/13

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