Cambridge – DBSV

Like a high yielding bond

At a Glance

• Stronger financials with gearing heading towards 33.3% target

• More acquisitions to boost earnings in 2011

• Attractive and highest yield in SREIT sector. BUY and TP S$0.58 maintained

Comment on Results

4Q10 results in line with expectations. Cambridge REIT (“CREIT”) posted gross revenues and net property income of S$19.1m (+1%yoy) and S$16.8m (+0.7% yoy) respectively. The slight uplift in rental income was attributed to contributions from 3 new properties acquired in 4Q, offsetting income loss from certain properties and strata units in Enterprise Hub divested in the FY. Distributable income fell 0.4% to S$12.0m, translating to a DPU of 1.14Scts. CREIT also reported a 5.7% increase in portfolio valuation compared to Jun 10 and raised NAV slightly to 60.7 Scts.

Gearing level to head towards 33.3% target. CREIT has lowered its gearing through periodic repayment of debts with monies from its divestment activities. It will further lower its current gearing of 34.7%, after repaying S$20m loans.

Acquisition strategy to continue in 2011. CREIT will complete the acquisition of 2 assets and embark on its first built-to-suit project in coming months, funded by the placement proceeds raised in 4Q10. The manager is likely to seek out more acquisitions in 2011 backed by its improved financial flexibility and lower gearing position.

Recommendation

BUY, TP S$0.58 based on DCF. CREIT continues to offer an attractive FY11-12F yield of 9.5-9.7%, the highest in the S-REIT sector. With improved income visibility post restructuring, we believe CREIT deserves higher valuation. Maintain BUY and TP of S$0.58, offering a total return of 20%.