Cambridge – DBS

Looking Steady

At a glance
• Results were in line with our estimates
• Only 6% of income to be renewed in next 4 years
• No ST refinancing requirements
• Maintain BUY, TP S$0.38

Comment on Results

Stable performance. Cambridge Industrial Trust (CIT) 1Q09 results were line with expectations. Gross revenues and NPI grew by 4% and 3% respectively to S$18.3 and S$16.1m respectively. The growth in performance was mainly as a result of additions from properties purchased in 2H08 and rental escalation from 21 of its properties. On a QoQ basis, performance remained flat. Distributable income was 19% lower largely due to higher interest cost on the new debt and management election to receive their fees in cash. DPU for 1Q09 was 1.291 Scts.

Gearing at 39.9% with interest coverage ratio (ICR) of 3.6x. These are within its loan covenants of an ICR of 2.5x and gearing of 55%. We note that CIT’s bankers will have the right to lockup cash proceeds in the event of CIT breaching the 50% gearing level. However, we view that it is unlikely to be breached, as it will involve a further estimated 20% reduction in asset values.

Portfolio valuation in 2Q09. Management informed us of the need to perform semi-annual valuations for its properties by its bankers. While we expect CIT to report further asset values write-downs in 2Q09, the quantum of devaluation should be mitigated by the fact that CIT properties are under-rented (signed on long term leases back in 2006) when compared to current market rents.

Recommendation

Maintain BUY, TP adjusted to S$0.38. CIT is expected to continue delivering a consistent FY09-10F DPU yield of 16% given good income visibility with (i) a secured income stream with average lease of 5.5 years, (ii) having only 6% of topline to be renewed in the next 4 years, (iii) locked in debt re-financing till 2012.