Cambridge – DBS

Building up its coffers

• 2Q09 results showed stable performance
• Private placement exercise leads to c10% dilution
• Impact on AEI activities only in the medium term
• Downgrade to HOLD, TP S$0.41 based on DCF.

Results in line. Cambridge Industrial Trust (CREIT) 2Q09 results were in line with expectations. Results were underpinned by a portfolio mainly secured on sale and leaseback leases. Distributable income came in 14% lower at S$10.7m (DPU of 1.345 Scts), largely a result of management fees paid in cash and higher borrowing costs.

Private placement- to National Australia Bank/ Oxley. In a recent announcement, Cambridge REIT announced a private placement exercise @ S$0.39 per unit to National Australia Bank & Oxley to raise cS$28m of proceeds. Total shares to be issued are estimated to be c.10% of share base.

Proceeds for asset enhancement purposes. Proceeds from the placement will be utilized to embark on asset enhancement initiatives (50-70%) and general working purposes (50-30%). While we understand that several of their assets have yet to fully utilize their plot ratios, raising equity at c. 12 -13% yield does present a relatively high cost of capital hurdle to overcome in order to make any investments accretive. In addition, Cambridge REIT may have to seek respective tenants’ approval before embarking on any meaningful enhancement works, which could mean that the potential impact on earnings is likely to be delayed.

Downgrade to HOLD. DPU is expected to be diluted by c7-9% in FY09-10F to c. 4.8 – 4.7 Scts. Our DCF based TP will be reduced to S$0.41, which is close to its closing price. As such, we downgrade to HOLD. Cambridge REIT currently offers a FY09-10F yield of 12%.