Cambridge – Phillip

For FY08, CIT recorded 36.4% rise in revenue, 37.1% rise in net property income
and a 4% drop in DPU. Full year revenue is $72.3 million and DPU is 6.012 cents.

Revenue analysis. Revenues over FY07 and FY08 have increased steadily which reflect the contribution from acquisition as well as the rental escalation component of leases. Net property income is very much in line with revenue growth, however distributable income starts showing a decline from 2Q08 onwards. DPU on the other hand is dismal and has been declining since 4Q07, partly due to the dilutive effect of the equity fund raising carried out in October 2007.

CIT has secured refinancing for its debt of $369 million through a 3 year term loan of $390.1 million. The current gearing is 37.8%. The loan comes at a substantially higher interest of 6.6%(including amortization of upfront cost). We estimate the cash interest circa 5.0%.

Changes at the top. Chris Calvert (former CEO of MacCarthurCook Industrial REIT) was appointed the CEO in Dec 2008 in place of Wilson Ang. Through a series of transaction, NabInvest and Oxley Group have bought over the 80% ownership of the REIT manager with the remaining 20% still under Mitsui Limited. We remain hopeful that the new management team will do more to add value to investors.

Valuation. We think the higher borrowing cost will continue to be a drag on distribution. We are also factoring in higher tenant vacancies to reflect the macro economic conditions. We revise down our gross revenue forecast for FY09F and FY10F by 3% each and assume a borrowing cost of 5.0%. Accordingly, our DPU forecasts for FY09F and FY10F fall 12% and 11% to 4.73cents and 4.99 cents. Fair value is also lowered to $0.27. We lower our call from Buy to Hold.