Cambridge – DBS

Addressing its gearing

At a Glance

• Results slightly above
• Asset restructuring/ dividend re-investment scheme proposed
• Maintain HOLD, TP S$0.49.

Comment on Results

Results slightly above. Cambridge REIT (CIT) results were slightly above estimates. Gross revenues and net property income (NPI) grew by 2.2% to S$18.7m and 1% to S$16.4m respectively on the back of steady occupancies (99.7% in 3Q09). However, distributable income declined 5.5% to S$11.2m largely due to higher interest costs, translating to a DPU of 1.34 Scts.

Moving occupancy assumptions upwards. The out- performance was mainly due to higher than projected occupancy levels, as we expected a slight dip. With improving economic outlook and that less than 3% of leases are up for renewal over the next 3 years, we have moved our occupancy assumptions upwards to be in line with current operational performance, leading to a 8% increase in our forward DPU estimates.

Moving towards gearing of 30-35%. The manager is reviewing ways of reducing the trust’s gearing from 42% to 30-35% level. Various measures are proposed which include (i) divesting certain non-core assets (ranging from S$25m-50m) and proceeds will be channeled towards repaying debt, (ii) a dividend re-investment scheme to conserve cash (possible instituting in 4Q09). The above are currently not included in our current forecasts.

Recommendation

Prospective yields of 11.2%. While we acknowledge that FY09-11F yields of c11% remains attractive, uncertainties from outcome from its portfolio restructuring could likely cap re-rating opportunities in the near term. Maintain HOLD, TP adjusted to S$0.49.