Cambridge – CIMB

Safe for now

• Met expectations; NPI margin declined. 4Q08 DPU of 1.37cts and FY08 DPU of 6.01cts were in line with Street and our expectations. Full-year gross revenue of S$72.3m was up 36.3% yoy on increased contributions from earlier acquisitions. 4Q08 NPI margins declined 6.3% pts qoq to 82.2% on higher property expenses, doubtful debt provisions and Shariah compliance fees. Distributable income in 4Q08 declined 7.8% qoq owing to increased borrowing costs. Occupancy remained high at 99.5%

• Refinancing woes over. In Dec 08, management successfully secured refinancing for debt due in Feb 09 with a S$390.1m syndicated 3-year loan from HSBC, RBS and its parent NAB. Including the amortisation of upfront costs, all-in interest cost is estimated at 6.6%. With this refinancing, CIT has no debt due till 2011, with a gearing of 37.8%

• Changes at the helm. CEO Mr Wilson Ang has stepped down after the refinancing exercise and Mr Chris Calvert (ex-CEO of MacarthurCook Industrial Trust) has taken over. Management foresees pressure on distribution mainly from higher interest costs.

• Maintain Outperform at higher target price of S$0.53 (from S$0.52), still based on DDM valuation (9.6% discount rate and 2% terminal growth). CIT has relatively high tenancy risks in view of its dependence on its top 10 tenants (which contribute more than 60% of revenue); its small number of tenants (under 100) compared with A-REIT (860) and MLT (224); and greater exposure to SME tenants. To account for possible defaults and lower occupancy levels, we reduce our growth assumptions to -2% for FY09 and 0% for FY10. On the other hand, we reduce our interest cost assumptions to 5.5% from 6.3% as amortised transaction costs included in total cost of debt are non-cash items. Our DPU estimate for FY09 increases 1.6% while our FY10 estimate declines by 1%. We also introduce FY11 forecasts. With forward yields of 16.6% and at 0.39x P/BV, CIT remains cheaper than the S-REIT average of 0.41x. Also, CIT’s main attractions remain its long weighted average lease expiry of 5.7 years, stepped-up increases for its leases, and 16 months of security deposits. Maintain Outperform.