– As the property sector continues to outperform the market year-to-date, we believe there is still value in the industrial space, which has been lagging the whole property sector in general. Cambridge Industrial Trust (CReit) remains our top pick in the industrial space, offering good acquisition growth domestically as well as overseas; and it also offers an added M&A angle of being a good potential target going forward. BUY.

– 7th acquisition announced since listing. CReit has announced another acquisition this month. Though a relatively small asset worth only S$5.8m, this is CReit.s seventh acquisition since listing boosting its portfolio value from S$520m at listing to S$686m (+32%). This is an industrial and warehouse asset that sits on 4,958sqm of land with a rentable area of 4,705 sqm. We estimate the asset yield to be 7.3%. The lease terms are 10 years with the typical 5% rental escalation on the commencement of the third, fifth, seventh and ninth year. Presscrete Engineering Pte Ltd, which provides specialist engineering servises will be the tenant for the asset.

– Industrial segment a laggard to the property sector . The industrial space remains a laggard to the property sector largely due to the nature of its rental reversions, which are limited to 1.5-2.5% growth YoY; unlike office or retail rents which have risen from between 10% to 60% YoY. However, we believe CReit is still a strong buy because of its acquisition potential. It has CWT, C&P, YCH and Mitsui as strong credible partners to feed its pipeline both locally as well as overseas.

– Growth via acquisitions; expect equity raising . Additionally, Cambridge has signed a total of S$108m MOU.s (Memorandum Of Understanding). The Reit has obtained a credit rating of BBB- from S&P, which allows it to gear up to 60%. Post the latest acquisition, Cambridge.s gearing stands at 50%. It can acquire another S$90m of assets before its gearing hits 56%, at which point we would expect Cambridge to raise new equity to achieve its targeted S$500m worth of acquisitions in 2007.

– Valuations undemanding . a laggard to Industrial Reit peers . Our target price of S$1.14, which gives 19% upside, is derived from pegging a 5.5% required return on CReit.s FY08CL DPU of 6.26c. CReit trades at a about 25% discount to MapleTree Logistics (MLT). We believe it deserves to trade at least on par with MLT given its acquisition pipeline domestically and overseas. It is our top pick in the industrial space.