CIT – DMG

Continue to strengthen through acquisitions

Full year results in-line with expectations. Cambridge Industrial Trust (CIT) released its 1Q12 results yesterday posting gross revenue and net property income of S$20.9m (+8.2% YoY) and S$18.0m (+8.4% YoY) respectively. The increase in revenue is mainly attributed to additional contributions from the five acquired properties over the last twelve months. DPU for the quarter came in at 1.171 S¢ (+17% YoY), equivalent to 24% of our FY12 DPU estimate. Going forward, we expect CIT’s DPU to continue to remain strong from 1) additional contributions from 25 Pioneer Crescent and 16 Tai Seng Street, 2) resilient industrial rental rates and 3) the completion of the BTS project at Tuas in 2H12. We maintain our BUY call on CIT with an unchanged DDM based (COE: 10.7%, terminal growth: 1.0%) TP of S$0.605. With CIT currently trading at 7.5% spread vs the pre-crisis historical mean of 4.6%, our TP represents a spread of 6.7% posting a potential upside of 10%

Multiple acquisitions and upgrading to improve portfolio performance. Since June 2011, CIT has completed five acquisitions, and divested its holdings at 7 Ubi Close. Recently, the company further indicated an acquisition at 16 Tai Seng Road. In addition, together with the completion of the BTS project at Tuas View Circuit by 2H12, we expect CIT’s DPU to grow by c.0.5S¢ (+12%) in FY12.

Pro-active management with room for slight positive reversion. CIT’s management continues to be pro-active in engaging tenants early on negotiations of lease renewals in a bid to reduce lease concentration. Average lease expiry profile for FY13/14 continues to decline to 48.4% from 53.4% YoY. Currently, CIT’s portfolio passing rent is S$0.95 psf/month; below current spot rents of S$1.00 – S$1.05 psf/month, with rents expected to re-rate slightly upwards upon lease expiry.

Acceptable gearing amid multiple acquisitions. Management has been undertaking a portfolio reconstitution exercise since beginning of 2010, divesting nonperforming assets and redeploying capital into yield accretive acquisitions. Amid multiple acquisitions, gearing has been pared down from 42.6% in Dec 2009 to 35.9% in Mar 2012. With an internal target gearing 40%, CIT will still has room to raise S$47.6m for further acquisitions.

Stable rental rate with respectable growth expected in 2012. As the outlook of industrial rental rates continues to remain stable together with a strong pipeline of acquisitions, we maintain our BUY rating with a TP of S$0.605.