Cambridge – CIMB

Working on refinancing

• In line, management fees paid in cash. 3Q08 results were in line with consensus and our expectations. DPU of 1.49cts form 24% of our forecast of 6.14cts for FY08. Gross revenue of S$18.3m was up 35.8% yoy on full contribution of acquisitions completed earlier. YTD DPU of 4.6cts forms 75.2% of our full-year estimate, in line.

• 100% of management fees to be paid in cash. DPU for 3Q08 shrank 12.4% yoy from 1.7cts as the management had elected the full payout of management fees in cash, as opposed 65% in units and 35% in cash earlier. This was primarily to reduce dilutive effects to existing unit-holders.

• Expect FY09 cost of debt to rise. The management is working on refinancing of S$337m of debt due by Feb 09. Cost of funding is expected to increase significantly “with a corresponding reduction in distributions” although the quantum was not guided. Nonetheless, we expect CIT to be able to secure financing with significant stakeholder National Australia Bank possibly coming in as the lender of last resort.

• Changes to assumptions. As all of CIT’s leases are on long lease arrangements, we maintain our forward rental estimates. However we cut our FY08 acquisitions of S$95m to S$32m, as MOUs for the acquisitions of Natural Cool Lifestyle Hub and a private lot at Tuas South St 5 had lapsed. We also increase our cost of debt assumption from FY09 by an additional 300bps, in line with indicative market rates, and adjust for cash payment of management fees from 3Q08.

• Maintain Outperform at lower target price of S$0.52 (from S$0.90). Following our adjustments, our FY08-10 estimates decrease by 1-25%. We have a lower target price of S$0.52 (from S$0.90) based on DDM valuation at a higher discount of 9.6% (from 8%), which more accurately reflects industry and company specific risks vis-à-vis other REITs under our coverage. Despite our increase in cost of debt assumptions, forward dividend yield in FY09 remains attractive at 19.8% due to overselling of the stock. Yields for CIT remain the highest within the industrial REIT sector in FY08, and above average S-REIT yields at 15.2%. We remain positive on the relative resilience of the industrial sector anchored by its long weighted average remaining lease term of 5.9 years. Maintain Outperform.