Cambridge Industrial Trust -
It’s all about debt
Proactive capital and risk management has allowed CIT to be in a stronger position than before. Given its robust balance sheet, we believe CIT is well positioned to make acquisitions when the opportunity arises while continuing to grow through AEIs.
3Q13 results were largely in line with our and consensus estimates. 3Q13 DPU accounted for 24% of our FY13 forecast, with 9M13 DPU meeting 72%. We tweak our model to account for the slightly weaker than expected results and roll over our valuations to FY15. In view of the strong balance sheet, we upgrade our rating from Neutral to Outperform with a higher DDM-based (discount rate: 8.3%) target price of S$0.79.
3Q13 DPU was up 3.9% yoy, mainly the result of additional rental income contribution from the four acquisitions completed earlier this year. During this quarter, portfolio occupancy remained high at 97%. Recently, CIT refinanced S$250m of debt facilities maturing in 1H14 and, in the process, lowered the trust’s borrowing cost to c.3.9%. During this process, S$81.3m from the proceeds from various divested properties, including 63 Hillview Avenue, was used to retire part of the S$208m term loan due in 1H14 while the remaining S$100m was refinanced to June 2016.
By doing so, CIT’s gearing was reduced to a healthy 27.9% (vs. 35.8% in 2Q13) with no refinancing needs till 2015.
Capital efficiently used
By retiring some of its debt, we estimate CIT saves c.S$3.3m p.a. in terms of interest expenses. Interestingly, this is more yieldenhancing than owning 63 Hillview, which was only giving a yield of 2.3% vs. the all-in interest cost of c.4.0% CIT was paying. All-in interest cost post re-financing is reduced to 3.9%.
Upgrade to Outperform
Although the acquisition market remains challenging, we believe a strong balance sheet will allow CIT to be well positioned to make any acquisitions/AEIs when opportunity knocks. In addition, the long debt expiry profile, together with c.86% of debt under a fixed rate, will allow it to weather any hikes in interest rates.
Publish date: 01/11/13