Cambridge – DBS

CIT to acquire Natural Cool Lifestyle Hub for S$55.2m; to turn Shariah Compliant

Story: Cambridge REIT ( CIT ) announced that it has entered into a put & call agreement to purchase another industrial asset, Natural Cool Lifestyle Hub located at 29 Tai Seng Avenue for S$55.2m. This asset is the first out of two assets (total S$63.8m) that CIT has lined up for future injection into its portfolio and was already highlighted in our initiation report dated 02 July 08.

Point: When completed, CIT’s portfolio will grow to 44 assets with a combined appraised asset value of c S$1.02bn. Post completion of the sale, Natural Cool Investments Holdings Ltd will lease back the asset for a period of 7 years.

We have assumed both assets to be injected into the portfolio by year end. Hence, our FY09 DPU estimate is adjusted upwards by 3% to 6.5 cts, while maintaining our FY08 forecast of 6.2cts.

Relevance: Maintain BUY on CIT with TP revised upwards to $0.92 (from S$0.88). At the current price of $0.64, CIT offers an attractive FY08-FY09 DPU yield of 9.6% and 10.2% respectively.

CIT to turn into a Shariah Compliant REIT In a separate announcement, CIT is seeking
unitholders approval to convert itself into a Shariah compliant REIT.

CIT cites the following benefits:
(a) Capitalising on the rising demand for such products in the REIT domain.
(b) Creating a new investor pool for the REIT.

We note that under Shariah law, CIT will not be able to pay or receive interest. In this regard, CIT has about $369m worth of interest bearing loans and will be seeking advise on arranging a Shariah compliant financing solution in this matter. We await management to advise further on this proposed change.