CIT – DBSV

High stable yields

• 1Q DPU makes up 24% of our FY12 forecast

• 2H earnings driven by new and impending acquisitions, as well two soon to be completed built-to-suit projects

• Maintain BUY with an unchanged TP of S$0.58

Highlights

DPU of 1.171 Scts in line. Both topline and net property income grew 8% each to S$20.9m and S$18.0m respectively. Growth was driven by contribution from properties acquired (where CREIT acquired close to 5 properties since a year ago) coupled with annual rental hikes for certain properties in its portfolio. Average occupancy remained high at 98.6%, while arrears remained low at 0.1% (vs 0.6% in 4Q11). Interest costs were lower due to oneoff costs incurred a year ago due to refinancing activities. As a result, distributable income grew by 17% to S$12m, translating to a DPU of 1.171 Scts (+17% y-o-y). We note that CREIT has also announced that a dividend reinvestment plan will be instituted in the quarter ended Mar’12.

Our View

Built-to-suit projects, AEI remain on track. The trust had a busy quarter, completing close to S$50.8m worth of acquisitions with an additional S$72.8m (16 Tai Seng Street) on option, which we believe will complete in the coming quarters. Development of two built-to-suit projects (Tuas View Circuit & Peter’s Polyethylene Industries Pte Ltd) will start contributing to earnings from 2H12, pointing to an even stronger FY13.

Resilient balance sheet, more acquisitions in 2H12 will be positive. Gearing at c.36% is within management’s comfortable range. The manager has a S$500m MTN program on tap for potential acquisition opportunities. We also note that CREIT will also be receiving S$102m in cash from the Singapore Land Authority (SLA) in Jan 13 arising from the compulsory acquisition of its properties. We believe management is actively looking to redeploy the proceeds to limit potential earnings downside.

Recommendation

BUY for higher relative yields of 8.8%-9.3%. CREIT remains attractive for its stable FY12-13F yields of c. 9%. Re-rating catalysts hinge on deployment of cash (cS$90m as of end-4Q11) on the balance sheet and incoming cash (est. S$102m by Jan 13) into income-producing acquisitions.