Tuesday, December 10, 2013

Cambridge Industrial Trust : Gaining strength (CIMB)

Cambridge Industrial Trust
Current S$0.70
Target S$0.79
Gaining strength

Proactive capital and risk management has put CIT in a stronger position than before. Given its robust balance sheet, we believe that CIT is well positioned to make acquisitions when the opportunity arises, while continuing to grow through AEIs.

In view of CIT‟s strong balance sheet and its potential to grow through AEIs and redevelopment projects, we rate it an Add under our new rating structure (previously Outperform). Our DDM-based (discount rate: 8.3%) target price stays at S$0.79.


Gaining balance sheet strength
CIT has recently refinanced S$250m of debt facilities that are due to mature in 1H14 and, in the process, lowered the trust‟s borrowing cost to c.3.9%. During this process, S$81.3m of the proceeds from various divested properties, including 63 Hillview Avenue, were used to retire part of the S$208m term loan due in 1H14, while the remaining S$100m was refinanced to Jun 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. By retiring some of its debt, we estimate that CIT saves c.S$3.3m p.a. in interest expenses. Interestingly, this is more yield-enhancing than owning 63 Hillview, which was only giving a yield of 2.3% vs. the all-in interest cost of c.4.0% that CIT was paying. All-in interest cost post refinancing is reduced to 3.9%.

Focus on AEIs and redevelopment projects
Moving ahead, management indicated that it will focus more on AEIs and redevelopments as it becomes more difficult to acquire yield-accretive projects on the back
of high asset prices and stringent government regulations. On this basis, we continue to factor in an estimated capex of S$85m for FY14 – largely focusing on AEIs and redevelopment projects.

Maintain positive view
Although the acquisition market remains challenging, we believe that CIT's strong balance sheet will put it on a strong footing 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. With dividend yields at 7.4%, CIT continues to be one of the REIT in Singapore that offers the highest yields.




Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 29/11/13

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