Cambridge – Phillip
3QFY09 Results
Cambridge Industrial Trust (CIT) reported results for 3QFY09. CIT recorded gross revenue of $18.7 million (+2.1% yoy, +1.2 qoq), net property income of $16.4 million (+0.9% yoy, +2.2% qoq) and distributable income of $11.2 million (-5.5% yoy, +4.6% qoq). DPU for 3QFY09 is 1.344 cents (-9.7% yoy, flat qoq).
Gross revenue showed slight improvement over the quarters on the back of rental escalation of leases and improving occupancy. Correspondingly, distributable income also increased over the quarters, however DPU for 3QFY09 was impacted by the dilution of the placement exercise, which saw 71 million new units being issued.
Current gearing of CIT is 42.6% and CIT total debt of $390.1 million matures in Feb 2012. Total portfolio size is $880.4 million and management expects asset valuation to hold.
Divestment plan to continue. The management of CIT indicates that asset rebalancing is a long-term action plan for CIT. Currently it has identified properties that are non-core to the portfolio and has plan to divest those properties. Aside from divesting assets, management is also considering entering into joint development projects with reputable developers.
Dividend reinvestment plan. CIT has proposed a dividend reinvestment plan (DRP) whereby investors can opt to have their quarterly dividend payout in the form of units instead of cash.
The proceeds from the asset divestment and the DRP will be used to reduce gearing. The management hopes to bring long term gearing down to 30-35%.
Valuation and recommendation. We feel the underlying portfolio has perform better than expectations. Occupancy rate has held up well and arrears average around 1.4% of gross rent. CIT maintains an average of 15.7 months of security deposit. We feel the main overhangs on the REIT are the high gearing and the relatively high interest cost, which are both a drag on DPU. Although both the divestment and DRP could bring down gearing, it has to be balance with accretive acquisitions in order to be value-add to investors. We revise up our occupancy rate and also factor in the dilution of the recent placement. Our fair value is lowered from $0.45 to $0.41. Our FY09F DPU is lowered from 4.93 cents to 4.83 cents. Maintain Hold recommendation.