Cambridge – DBS

Making the right moves

• Stable recurrent income from portfolio with 99.8% occupancies
• Divestment of non-core assets crystallizes NAV.
• Future catalysts from acquisitions and asset enhancement.
• Laggard for too long, Upgrade to BUY, TP S$0.54

Improved DPU of 1.377 Scts. With high occupancies of 99.8%, the group achieved topline and net property income of S$18.9m and S$16.7m respectively. Distributable income grew 6.6% to S$11.9m, translating to a DPU of 1.377 Scts. The group also plans to institute a dividend reinvestment scheme starting from 4Q09 distribution, of which details will be announced at a later date.

Divesting non-core assets to realize its NAV. Management is selling non-core assets to keep its portfolio up to date. In 4Q09, the trust sold off S$6.6m worth of properties (16 Tuas Ave 18A property and 6 out of 120 strata units at Enterprise Hub) at above book values. In the coming months, CIT targets to divest S$78.6m worth of properties. This is positive for CIT to realize its NAV and improve its financial flexibility going forward.

REIT with a warchest? Sale proceeds will likely be used for (i) repayment of debt, (ii) acquisition opportunities that management is currently exploring or (iii) asset enhancement activities at a couple of existing properties. All these will position CIT with better portfolio quality and financial flexibility.

Upgrade to BUY, TP S$0.54. We believe CIT offer investors to partake in the group’s portfolio reconstitution strategy of which should be value enhancing for unitholders. Valuations are compelling at 0.75x P/NAV and prospective FY10-11F yields of c11.2-11.6%, backed by long leases and rental guarantees. Upgrade to BUY, TP S$0.54 based on DCF as we lower our WACC assumptions to take into account the improved outlook.