Month: July 2008
Cambridge – BT
CIT seeks conversion to become Syariah Reit
With change, it will be the first such listed Reit here
CAMBRIDGE Industrial Trust (CIT) is seeking unitholders’ approval to convert the real estate investment trust into a Syariah-compliant Reit to capitalise on the growing wealth in the Middle East and cultivate a new investor pool when raising capital or issuing debt.
‘In the long term, the diversification and broadening of the investor pool may deliver more cost-efficient capital and provide optimal funding options for CIT’s growth plans,’ CIT’s manager, Cambridge Industrial Trust Management Ltd (CITML), said in a release to the SGX yesterday evening.
Upon conversion, CIT will become Singapore’s first publicly-listed Syariah-compliant Reit and the world’s first listed Syariah-compliant industrial Reit, CITML said.
The fundamental difference between a Syariah-compliant Reit and a conventional Reit is in ensuring that the revenue of the Syariah-compliant Reit is derived from halal or permissible activities and its funds are managed in accordance with Syariah principles, CITML noted.
CIT has a portfolio of 43 properties valued at $966.8 million. The Islamic Bank of Asia has been appointed to act as Syariah adviser for the proposed conversion. HSBC will advise on, and arrange, a Syariah-compliant financing solution for CIT to refinance its existing interest-bearing loans. A fundamental tenet of a Syariah-compliant Reit is that it should not pay or receive interest. CIT currently has $369.3 million of interest-bearing loans.
The trust’s cash and liquid assets will also have to be invested in Syariah-compliant products and CITML is reviewing the alternatives in this regard.
‘A due diligence review on the use by the tenants of the properties in the CIT property portfolio has been undertaken to ascertain whether the tenants operate permissible activities. We are pleased to advise that 98.86 per cent of the rental income received by CIT has been derived from permissible sources,’ CITML said.
After conversion of CIT to a Syariah-compliant Reit, the usage of the properties by the trust’s new tenants must be fully Syariah-compliant.
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.
CCT – Nomura
Forum takeaways
From the Nomura Asia Equity Forum: CCT confirmed that it sees significant rental reversionary potential in the portfolio. While credit markets are tight, management expects no significant refinancing to be needed until March 2009, and is looking to agree terms by end of this year. We see inherent value in the office portfolio and retain our STRONG BUY rating on CCT.
Anchor themes
Assuming office supply will remain tight through 2008F, we expect office rents to peak during 2H08-1H09F, before entering a cyclical decline in 2010F (down 13.7%) and 2011F (down 19.0%), amid increased new supply.
Strong rental reversions are likely to underpin REIT cashflows. That said, growing concern over their ability to refinance debt have seen REITs trade below book. In such conditions investors need to focus on underlying asset values, while REITs with well-located assets should benefit from expectations of rising M&A activity.
Rental reversions, low gearing
Cambridge – Nomura
Forum takeaways
From the Nomura Asia Equity Forum: management indicated that Cambridge Industrial Trust is making significant progress in refinancing and terming out its short-term debt. Given current market conditions and an annualised DPU yield of about 10%, near-term yield-accretive acquisitive growth prospects appear muted.
Stable cashflow and capital management
AREIT – Nomura
Forum takeaways
From the Nomura Asia Equity Forum: A-REIT confirmed it sees significant rental reversionary potential in its industrial portfolio, specifically business/science park buildings. While appreciative of the risks of a slowing economy, occupancy remains well over 90%, with the three-year lease structure underpinning cashflow surety.
Anchor themes
Higher warehouse supply, at 5.3mn sf in 2008F and 2.3mn sf in 2009F (versus the five-year average of 1.7mn sf) at a time of slowing economic activity (2008F GDP growth of 3%) is likely to adversely impact rental expectations and valuations.
Strong rental reversions are likely to underpin REIT cashflows. That said, increased concerns over the ability to refinance debt have seen REITs trade below book. In such an environment, investors need to focus on underlying asset values, with REITs with well-located assets beneficiaries of rising expectations of M&A activity.
Industrial demand still firm