Cambridge – DBSV

Cash call for acquisitions

• Cash call to fuel growth ambitions

• Earnings accretion from acquisitions is neutral; boost from interest savings from new loan facility

• BUY CIT for its high yield of 10%

Proposing to acquire 3 properties for S$116.8m. The three properties are located in the Western part of Singapore. The first property is at 4 & 6 Clementi Loop; Cambridge REIT (CIT) has agreed to pay the Vendor, Hoe Leong Corporation, S$40m with an additional S$23.3m payable upon completion of construction of an additional adjacent building in 2012. The remaining two properties (costing a total of S$53.5m) are still at MOU stage with CIT doing their due diligence. When acquired, CIT will lease them back to the vendors for durations of over 5 years, with lease extension options ranging 3-6 years. Completion of the acquisitions is expected to be in 3Q11.

Rights issue to raise S$56.7m. To part fund the purchase of the mentioned properties, CIT is proposing a 1-for-8 rights issue to raise gross proceeds of about S$56.7 m. The rights are priced at S$0.429 (15% discount to closing price of S$0.505 and a 13.7% discount to TERP of S$0.497), with the remainder from debt. Based on a projected yield of 8%, we estimate mild accretion to earnings from the above properties. Distributions will instead be boosted by interest savings from a recently secured S$320m loan facility, which will shave off over 150 bps in expenses (all in cost of 4.4% vs 5.9% previously).

Near term dilution, but stock still offers yields >10%, BUY. As the acquisitions are expected to complete towards 3Q11 while the rights units are expected to be issued in Apr 2011, our DPU estimates will be reduced by 5% in FY11 to 4.7 Scts but lifted by c1% to 5.1 Scts in FY12, translating to yields of over 9.3-10.1%. Maintain BUY.