Cambridge – Nomura
Our view
We cut our GAV estimate for CREIT by 3.5%, as we lower our industrial rental forecast to capture a peak-to-trough correction of 31.7% (vs. 23.9% previously). Lower GAV estimate suggests potential for CREIT to raise fresh equity to keep gearing within limit. Target price cut from S$0.30 to S$0.24. Maintain NEUTRAL.
We cut our GAV estimate for CREIT by 3.5%, as we lower our industrial rental forecast to capture a peak-to-trough correction of 31.7% (vs. 23.9% previously). Lower GAV estimate suggests potential for CREIT to raise fresh equity to keep gearing within limit. Target price cut from S$0.30 to S$0.24. Maintain NEUTRAL.
Anchor themes
A rapid deterioration in the external sector and the economic outlook is likely to crimp demand for industrial/warehouse space amid rising new supply. We expect yields to soften by 150bp from June 2008, placing downward pressure on capital values.
Rental reversions/lease structures are likely to underpin REIT cashflows. That said, growing concerns over their ability to refinance debt have seen REITs trade below book. In such conditions, investors need to focus on underlying asset value/quality, while REITs with well-located assets should benefit from potential M&A activity.
Weaker asset outlook
- Worsening industrial outlook = a 3.5% cut in GAV estimate
- Lower GAV estimate = new equity potentially needed
- FY09-11F DPU cut 1.5% to reflect higher-than-previously guided cost of refinancing
- Maintain NEUTRAL; target price cut from S$0.30 to S$0.24