Cambridge – DMG

Sharp drop in DPU following rights issue

1Q11 DP U dropped sharply mainly due to share base expansion. Cambridge Industrial Trust (CIT) reported a lower DPU of 1.0S¢ in 1Q11 (- 21.4% YoY; -16.1% QoQ), representing 19.9% of our FY11 DPU estimate. The sharp drop in DPU is mainly attributable to the rights issue which was listed in Apr 2011. We expect CIT’s DPU to pick up in subsequent quarters as two acquisitions are expected to be completed and commence contributions in 2Q11. Given the 132m rights units have been officially listed on 15 Apr 2011, we lowered our FY11-12F DPU estimates by 13.9-9.2% respectively to account for the enlarged share base. Consequently, our TP is lowered to S$0.59, based on DDM (COE: 10.1%, TGR: 1.0%). Maintain BUY as CIT is still trading at undemanding spread of 6.5% vs pre-crisis spread of 4.9%.

S$46.4m worth of property acquisitions to be completed in 2Q11. Two new additions – a warehouse at 4 & 6 Clementi Loop, and an industrial building at 60 Tuas South Street 1 – will add ~233k sqft of GFA to CIT’s existing portfolio GFA of 6.98m sqft. Based on assumption of 40% debt funding, we expect incremental DPU of 0.09-0.23S¢ from the acquisitions in FY11-12. Meanwhile, the S$13.1m BTS project at Tuas View Circuit is expected to be completed only in 2Q12.

New term loan facility being mooted. CIT will need to refinance its loans beginning next year where its existing syndicated term loan of S$303m will mature in Feb 2012. It is currently in discussion with four financial institutions for new term loan of S$320m which comprises of a three-year tranche of S$220m and a five-year tranche of S$100m. Estimated all-in borrowing cost for the new term loan facility is ~4.4%/year. Coupled with the acquisition term loan facility which has debt cost of 3%, we expect CIT’s all in cost of debt to drop from current 5.7% to 4.0-4.1%. In addition, we believe CIT’s gearing will decline to ~30% by end FY11.