Price Target: 12-Month S$0.74 (Prev S$0.70)
Resilient and transparent
• 3Q13 results in line; early refinancing of expiring loans minimizes refinancing risks
• Developments and acquisitions to drive earnings growth
• HOLD, TP S$0.74 maintained
3Q13 results in line. Cambridge REIT (CREIT) reported a 5.9% and 0.7% y-o-y rise in revenues and net property income to S$23.8m and S$19.3m respectively.
The higher performance was mainly due to the contribution of various acquisitions (four properties) and development/asset enhancement projects (88 Int’l Rd and 4/6 Clementi Loop in 1H13) which more than offset the income vacuum from the divestment of four properties (of which 63 Hillview and 23 Lorong 8 Toa Payoh were only recently divested and thus were still contributing to topline in 3Q13). Portfolio occupancy remained high at c.97%. Distributable income rose by 6.0% y-o-y to S$15.4m (including S$1.2m capital distribution), translating to a DPU of 1.251 Scts (+3.9% y-o-y).
Early refinancing of expiring loans; gearing down to 27.9% as of 3Q13. CREIT refinanced S$250m worth of debt facilities due in 2014 and in the process lowered average cost to c.3.9%. The manager has also paid down S$108m of the loan, funded by its divestment proceeds. As a result, gearing ratio fell to c.27.9% (as of end 3Q13).
Portfolio reconstitution to continue in 2014; AEIs to drive earnings growth. CREIT will be renewing close to 26.1% of its leases in 2014, of which a majority will be single-tenanted properties. The manager expects, out of the eight expiring head leases, to renew one, divest three and convert the remainder into multi-tenanted properties. During the course of the conversion/renewal, earnings should remain fairly stable. In addition, the completions of the acquisition of 30 Teban Gardens (by 4Q13 and the development projects at 3 Pioneer Sector 3 and 21B Senoko Loop (both by 4Q14)) will underpin a steady growth profile in the coming years. We expect gearing to settle at c.31% after all these investments are accounted for by the end of 2014.
HOLD maintained, TP S$0.78. CREIT continues to offer a steady, resilient and growing DPU growth profile of c.5-6% which, in our view, is transparent and easily achievable. Our HOLD call is maintained, given limited upside to our roll-forward TP of S$0.74.
Publish date: 04/11/13