Cambridge – DMG

Yet another stable quarter

3Q12 results in-line with expectations. Cambridge Industrial Trust (CIT) just released its 3Q12 results posting gross revenue and net property income of S$22.5m (+8.5% YoY) and S$19.2m (+8.9% YoY) respectively. The increase in revenue is mainly attributed to additional contributions from the acquisitions at 16 Tai Seng Street, 25 Pioneer Crescent and 3C Toh Guan Road East. DPU for the quarter came in at 1.204S¢ (+11.3% YoY), equivalent to 25.1% of our FY12 DPU estimate. Going forward, we expect CIT’s DPU to continue to remain strong from 1) additional contributions from its acquisitions including the recently acquired properties at 11 Woodlands Walk and 30 Marsiling Industrial Estate Road 8; 2) resilient industrial rental rates coupled with average security deposits of 12.5 months; 3) new contribution from the BTS project at Tuas View Circuit which was completed in August 2012 and 4) future AEIs in the pipeline. On the back of continual interest in yield plays coupled with a prolonged low interest environment and high liquidity, we continue to favour CIT for its high dividend yield (c.7.2%) and the improvement in quality of its portfolio. Based on the abovementioned factors, we maintain our BUY call on CIT with a revised DDM based (COE: 9.3%, terminal growth: 1.0%) TP of S$0.750. With CIT currently trading at 6.6% spread vs the pre-crisis historical mean of 4.6%, our TP represents a spread of 5.7% posting a potential upside of 12.8%

Multiple acquisitions and AEIs a positive for DPU. Since the beginning of the year, CIT has completed five acquisitions (namely: 16 Tai Seng Street, 25 Pioneer Crescent, 3C Toh Guan Road East, 11 Woodlands Walk and 30 Marsiling Industrial) and proposed a future acquisition at 30 Teban Gardens Crescent and 54 Serangoon North Ave 4. Together with the completion of the BTS project at Tuas View Circuit, we expect CIT’s DPU to grow by c.0.5S¢ (+14%) in FY12.

Maintain BUY with revised TP of S$0.750. 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, net gearing has been pared down from 42.6% in Dec 2009 to 37.0% in September 2012. With an internal target gearing 40%, CIT will still has some room for further acquisitions. Together with an attractive forecasted FY12/13 yield of 7.2%/7.9% and defensive earnings, we maintain our BUY rating with a revised TP of S$0.750 as we roll over our forecast into FY13.