Cambridge – DMG

A sale not to be missed

Earlier this month, CIT announced the desire to sell their industrial property at Lam Soon Industrial; a 230,915 sq ft freehold site located at Hillview Avenue. At that time of announcement, management was unwilling to provide a target selling price as various hurdles, including convincing other owners to sell, have to be overcome before the sale could be moved forward. However, we speculate the sale of this site to be progressing as CIT, who currently owns c.69% of the building, has officially put the site up for sale on 23rd May 2012. With an indicative pricing of S$330m (equivalent to S$925 psf after including a development charge of S$80m), we view this sale positively as the target selling price is 3.7x the valuation of the property as at December 2011. Reiterate BUY on CIT with a DDM-based (COE: 10.7%, terminal growth: 1.0%) TP: S$0.605.

Site most likely to be sold to developer. Under the 2008 master plan, the Lam Soon site is zoned for “residential” use with a gross plot ratio of 1.92. Although there are strong demands for light industrial space in Singapore, given that the vicinity of Hillview had been developed into a residential area, together with further infrastructure development including the upcoming Hillview MRT station scheduled to be completed by 2015, we expect the site to attract strong interest from residential developers. At the moment, we believe this site can be redeveloped into a 10-storey residential development comprising 370 apartments fetching an average of S$1200-1400 psf.

Sale could improve both gearing of the company and inspire further growth. With an estimated cap rate of 4.7% on this building and assuming the transaction to be completed in 4Q12, we estimate a loss of approximately 1.6% of CIT gross income from this sale. However, with the proceeds from this sale, it gives the trust a significant warchest of capital for future acquisition of higher yielding industrial buildings for its portfolio. Reiterate BUY on CIT with a DDM-based (COE: 10.7%, terminal growth: 1.0%) TP: S$0.605.

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