New acquisition

Acquisition of 16 Tai Seng Street. The management of Cambridge Industrial Trust (CIT) just announced the acquisition of the property at 16 Tai Seng Street for a purchase consideration of S$59.25m. 16 Tai Seng Street is a purpose built, contemporary, with a current gross floor area of approximately 16,282 square metres. On completion of the acquisition of the property (2Q12), CIT will lease back the property to the seller for a period of six years. This acquisitions, which is expected to bring in an additional dividend of 0.16S¢, will be funded through a combination of 40% debt from the Acquisition Term Loan Facility and 60% cash from the net proceeds from the Medium Term Note (the “MTN”) Issuance. We maintain our BUY call with a DDM-based TP S$0.605.

Well located, purpose built industrial property. 16 Tai Seng Street is a purpose built, contemporary, five storey industrial building with an ancillary showroom, with a current gross floor area of approximately 16,282 square metres. Located in the central part of Singapore, it is near to the Tai Seng MRT station and easily accessible by the Central Expressway as well as the Pan Island Expressway. 16 Tai Seng Street is a JTC leasehold estate of 30+30 years tenure commencing from 4 July 2007.

Further extension of property by seller. In addition, the seller will be undertaking alterations and additions (A&A) to construct additional floors which will increase the gross floor area of the subject property from approximately 16,282 square metres to approximately 19,878 square metres. Upon completion, a further sum of S$13.08m will be paid for the extension on the property. The A&A Works are expected to be completed within 12 months (2Q13) from the date of completion of the acquisition.

Positive view on acquisition. We view this acquisition positively as the company is able to gain a spread of 2% (4.5% interest rate incurred due to MTN and term loan vs an average cap rate of 6.5%) through this action with no dilution to shareholders’ equity. We maintain our BUY call with a TP of S$0.605.

Cambridge trust buys Nobel’s Tai Seng property

$72.3m price tag includes $13.08m for additional space

CAMBRIDGE Industrial Trust (CIT) is acquiring Nobel Design Holdings’ Tai Seng Street property for $72.33 million. The price includes $13.08 million payable to the seller for works to be carried out to increase the gross floor area.

The two Singapore-listed companies have also agreed to a leaseback agreement which will see Nobel Design leasing the property for six years, thus providing a stable and secure income stream for the trust.

‘Assuming that the acquisition, including alterations and additions works, had been effected on Jan 1, 2011, the pro forma financial impact on both the earnings per unit and distribution per unit for FY2011 are 0.16 cents,’ said CIT.

The purchase was well received by analysts at DMG Research and RBS, who have maintained their ‘buy’ recommendations on CIT.

Currently, the corporate headquarters of Nobel Design, the purpose-built contemporary five-storey industrial building has an ancillary showroom and measures 16,282 square metres.

Nobel Design will undertake alterations and additions to construct additional floors, which will provide more logistics and showroom space for the company, increasing the gross floor area to 19,878 sq m.

Construction works are scheduled to be completed within 12 months after the expected completion of the acquisition by the second quarter of 2012.

CIT intends to fund the acquisition through a combination of debt via the acquisition term loan facility and cash from the medium term note (MTN) issuance announced on Tuesday.

The $50 million fixed rate notes issued under the $500 million MTN programme will bear an interest rate of 4.75 per cent per annum payable semi-annually in arrears and will mature on March 13, 2015.

‘We view this acquisition positively as the company is able to gain a spread of 2 per cent, through this action with no dilution to shareholders’ equity,’ said TiWee Pang, an analyst with DMG Research.

Nobel Design, which had originally intended to keep the property as a long- term investment, said it was selling the property to free up capital for business expansion.

Assuming the sale of the property (including additional and alteration works) was completed at the end of fiscal year 2011, the proposed sale price represents an excess of $54.56 million over the book value.

Nobel Designs intends to use the proceeds from the sale to strengthen its balance sheet, expand business, pay the expenses involved in the construction of additional floors, and reduce its bank borrowings.

Furthermore, by entering into the lease agreement, Nobel Designs will have continuous use of the premises with no disruption to its normal business operations.

The acquisition will be CIT’s maiden property in the 15-hectare Paya Lebar iPark precinct, which is JTC’s test-bed for the next generation industrial parks featuring green open spaces and specially designed buildings.

‘Given the strong tenant profile and location of the property, we believe that this acquisition will help to further improve the trust’s overall portfolio quality,’ said RCB’s analyst Bryan Lim.

The property has a 30- year tenure expiring on July 3, 2037, and an option to extend for another 30 years.

CIT said it was acquiring the ‘high-quality industrial asset’ as it will further reduce the group’s reliance on any single asset and tenant.

Based on the rental income for December 2011, the acquisition will increase CIT’s weighted average lease expiry profile from 3.3 years to 3.4 years.