Thursday, December 26, 2013

Cambridge Industrial Trust - Proposed acquisition (CIMB)

Cambridge Industrial Trust -
Current S$0.68
Target S$0.80
Proposed acquisition

CIT has proposed to acquire 11 Chang Charn Road for S$32m. We view this acquisition positively as we see room for CIT to maximise the return from this property via raising occupancy and rental rates.

We believe the proposed acquisition of 11 Chang Charn Road, expected to be completed in 1Q14, will add c.0.8% to CIT’s FY14 dividend. In view of the slightly stronger dividend yield, we tweak our DPS estimates up by 0.8% for FY14 and 1.1% for FY15. We maintain our Add call, with a higher DDM-based (discount rate: 8.3%) target price of S$0.80.

What Happened
Cambridge Industrial Trust (CIT) has just announced the proposed acquisition of 11 Chang Charn Road for S$32m. This property is a six-storey multi-tenanted purpose-built warehouse cum light industrial building with a GFA of 9,062 sq m (c.97,300 sq ft). It is located in the Bukit Merah district near Leng Kee Road, the largest luxury car belt in Singapore, and well connected to major roads and expressways.

The asset is a leasehold property with remaining land tenure of c.43 years. The acquisition is expected to be fully funded via cash on hand and existing debt facilities. Upon completion of this acquisition, the vendor is expected to take a partial leaseback of c.30% of the total GFA; and CIT will sub-lease out the remaining GFA.

What We Think
With an initial NPI yield of 4.5% at 75% occupancy rate, we believe CIT could potentially raise the level of return from this property via i) increase occupancy and ii) elevate passing rent from the current c.S$2.0 psf/mth to the surrounding market rent of c.S$2.5 psf/mth. Through these activities, we expect the NPI yield of this asset to rise to c.7-7.5%. However, given the property’s limited scale, we believe the positive impact on FY14 dividend to be constrained to c.0.8%. In addition, assuming 100% of this acquisition is funded via existing debt facilities, gearing is expected to grow by c.1.7%.

What You Should Do
CIT remains an Add, with a slightly higher DDM-based target price of S$0.80

Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 24/12/13

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