Cambridge Industrial Trust
Growth expected to slow
NEUTRAL - Downgrade
▊ We caught up with Cambridge Industrial Trust’s (CIT) management recently. During the meeting, it was highlighted that given current market conditions and policies implemented by the government, the acquisition market looks less sanguine than before. Future growth is expected to be attributed from AEIs in 2014. With a more challenging acquisition market, we expect CIT to grow at a slower pace in 2014. We have lowered our capex assumption for FY14 to S$85m from S$150m previously. Consequently, we have reduced FY14/15 DPUs by about 6.8% on average. Downgrade to Neutral from Outperform with lower DDM-based target price of S$0.74.
More difficult to grow
As the industrial landscape becomes more regulated through various government policies, such as i) the shortening of industrial land leases and ii) upfront payment of land rents, both the acquisition and development market have become more challenged as investors find it more difficult to achieve similar returns as before. Also, due to the availability of liquidity and with current low interest rates, the mismatch in pricing expectations between vendors and REIT managers has continued. On this basis, we expect CIT to rely less on acquisitions or development for growth and more on AEIs in 2014.
Three key issues
Previously, management indicated that it would focus on three key issues in 2H13: i) reduce the lease expiry profile in 2014; ii) refinance the S$308m debt that will be due in FY14 and iii) the sale of Lam Soon Industrial. Of the three key issues, Lam Soon has successfully been divested at S$140.8m, while the refinancing of the debt due next year was previously highlighted to be at an ‘advanced stage of negotiations’ with several financial institutions. For the 2014 lease expiry profile, we remain confident of management’s ability to lower the level on a quarterly basis.
Slower growth expected
We have downgraded CIT to Neutral on the back of a more challenging growth environment in FY14.
Publish date: 04/10/13