Cambridge – CIMB

Room to catch up

• Maintain Outperform. CREIT has a small asset size with tenant concentration risks, unlike its much larger peers, A-REIT and MLT. Nonetheless, we expect its rental income to stay visible in the medium term with all its tenants on long leaseback arrangements with built-in rent increases.

• Concerns remain but limited lease expiries over next four years. Only 30% of its master tenants are end-users of its industrial space. CREIT also has a heavy reliance on its top 10 tenants for gross revenue. Nonetheless, we take comfort that management is managing its tenants and sub-tenants much more tightly, taking steps to ensure tenant sustainability. Limited lease expiries of only 5.4% over the next four years add some certainty to occupancy sustainability.

• DDM-derived target price raised to S$0.48 (from S$0.47). We maintain our estimates but use a lower discount rate of 9.4% (from 9.6%) based on a lower riskfree rate of 4.8% applied across our REIT universe. CIT remains the cheapest industrial REIT under our coverage. P/BV has risen to 0.5x, but still lags behind the REIT sector’s 0.6x average. We believe there is room for price upside.