Cambridge – Nomura

Executing two-step funding

• FY10-11F DPU cut to reflect asset sale, sale of AAREIT stake; FY12F DPU of S$0.052

Following the 4Q09 results, we have revised our estimates for CREIT to reflect the sale of 16 Tuas Avenue 18A and six strata units at Enterprise Hub during the quarter. In addition, we have factored in a loss of S$2.4mn booked in 4Q09 from the sale of CREIT’s entire stake in AAREIT (formerly MIREIT), which we had previously included in our distribution forecast. All in, we have cut our FY10-11F DPU forecasts by 10.5-10.8% and we introduce our FY12F DPU forecast of S$0.052 (+1.6% y-y).

• Further asset divestment could pare DPU by S$0.003

As of end-4Q09, assets worth S$78.6mn have been contracted for sale over the next 12 months and booked as “investment properties held for divestment”. Assuming an average exit yield of 8% for these assets and that the proceeds will repay borrowings that cost 4.2% in cash interest, our numbers suggest another S$0.003 could be shed from our FY10-12F DPU forecasts. Given that this is in essence a two-step funding process for potential accretive opportunities (divestment proceeds to pay down existing term loan facility, and then use the debt capacity to gear up for asset enhancement of existing portfolio or external acquisition), the ultimate DPU impact therefore will depend on management’s execution of this strategy.

• NEUTRAL, price target raised to S$0.48

We have cut our cap rate assumption by 50bps and, adjusting for other changes following the results, we have raised our core NAV and price target to S$0.48 (from S$0.44). Our new price target offers a potential total return of 17.7%, including a projected FY10F dividend yield of 11.3%.