Cambridge – DMG

Rights Issue for S$116.8m of acquisitions

EFR to acquire 3 acquisitions at estimated NPI yield of 8%. CREIT is proposing to raise S$56.7m through a fully underwritten renounceable 1-for-8 rights issue. A total of 132.1m shares will be issued at S$0.429/unit (15.6% discount to VWAP on 10 Mar). Nett proceeds of S$53.8m from the EFR would be utilized, together with S$40.9m debt financing and existing cash to fund 3 acquisitions of S$116.8m. We estimate CREIT’s cost of capital to be about 6.27% and expect the acquisitions to be mildly accretive, adding just 0.8%-2.8% to FY11 and FY12 DPU estimates. Maintain BUY, DDM-based TP of S$0.61.

Accretive Acquisitions. The acquisitions comprise of 4&6 Clementi Loop (binding S&P agreement signed) and 2 other acquisitions in the western part of Singapore (MOUs signed), and are purchased on sale-and-leaseback basis to the respective vendors for lease terms of between 5 and 6 years with options to renew. The purchase consideration for 4&6 Clementi Loop is split into an initial amount of S$40m upon completion of purchase, and a further S$23.3m upon completion of extension development works by the vendor around end of 2012. An additional new building would be constructed, adding 10,291 sqm of Gross Floor Area. CREIT’s asset size increases to S$1b post acquisition. The acquisitions are expected to be completed by 3QFY11.

Favourable valuations; maintain BUY. The acquisitions are expected to improve the operating statistics of CREIT, pushing out the weighted average lease expiry of the portfolio from 4.1 to 4.2 years and reducing lease concentration from 17.3% to 15.4% for 2013 and from 37.3% to 33.1% for 2014. Free float is expected to increase by 12.5%, potentially increasing the trading liquidity of the stock. Stock trades at 10% FY11 yield, attractive relative to its peer average of 7.3% and its pre-crisis yield of 6.7%.