Cambridge – Phillip

Business As Usual

The recent MIREIT saga came to an end as all the resolutions were passed during the EGM. According to the latest regulatory fillings, Cambridge Industrial Trust (CIT) has sold down its stakes in MIREIT from 26 million units to 13.31 million units. We believe that CIT has no intention of maintaining an interest in MIREIT. A recent update with management indicates that it is business as usual and it will focus on its original plan that was outline before the saga took place.

De-leverage. CIT current gearing is 42% and has total debt of $390.1 million. Management expects year-end valuation of the portfolio assets to remain constant and therefore should not affect gearing substantially. De-leverage strategy involves divesting non-core assets as well as the implementation of Dividend Reinvestment Plan (DPR) to retain cash and pay down debt. CIT has a target gearing in the range of 30-35%. No firm implementation date has been set yet, but the DRP program is slated to commence from 1QFY10.

Asset enhancement and acquisitions. Management is in talks with tenants on possible asset enhancement initiatives, however tenants are still cautious about the recovery at this stage and nothing has been carried out yet. On the acquisition front, management has not rule out making acquisitions in the next year.

Valuation and recommendation. In our opinion, the MIREIT episode has caused slight hiccups to the initial plan of CIT, but no real derailment. The underlying portfolio is still sound with high occupancy rate and tenants are paying their rents on time. The impact on CIT besides some bad presses is the financial impact to the bottom line. According to our calculations, we estimate that CIT would have incurred a loss
of approximately $2.3 million if it completely off-loads its holdings, which has a minimal impact on NAV. We make no change to our forecasts for now and maintain a Hold recommendation.