Cambridge – DBS

Attractive, Stable Yields

Story: We initiate Cambridge Industrial Trust (CIT) with a BUY rating and target price $0.88 backed by DCF valuation. CIT has been on an acquisition path in FY07, almost doubling its portfolio since listing to 43 local industrial assets worth c.$967m as at Jun’08. We like CIT for its attractive yields of 9% backed by secured rental income with an added avenue for acquisition growth through leveraging on its strategic partners network.

Point: CIT’s attraction for investors will be its i) earnings stability from an asset portfolio leased on a long term basis (average rental expiry of 6.4 years) with built-in escalation clauses providing organic growth. ii) S$ denominated earnings which is expected to remain strong against other currencies over the medium term.

In terms of growth opportunities, we believe that strategic alliances with Oxley Capital Group and Mitsui & Co Ltd can provide valuable experience and network into the Asia Pacific, forming a platform for potential portfolio growth through its established wide business. Potential deals from these networks could provide a basis for earnings upside surprise going forward. CIT has another S$62.8m worth of assets to be injected, when concluded could add a further $0.04 to our target price.

Relevance: We believe CIT is undervalued, trading at 0.9x P/BV against the industrial REITs trading in the range 1.2x – 0.7x P/BV and offers an attractive DPU yield in FY08 and FY09 of c.9.6-9.7%. Therefore, we initiate coverage with a BUY recommendation, TP $0.88.