Cambridge – Daiwa

Executing its articulated strategy in 2010

2 (Outperform) rating maintained

• We maintain our 2 (Outperform) rating and six-month target price of S$0.58, based on parity to our RNG valuation (a finitelife Gordon Growth model). We expect management to continue to show progress in realising its strategy of capital management, divestments, and asset-enhancement opportunities (we expect some imminent announcements in this area) while maintaining a stable quarterly DPU and net-property-income profile.

We expect the valuation discount to narrow steadily

• As long as Cambridge can maintain the momentum of delivering predictable quarterly results while gradually improving its capital position and mitigating its debt-refinancing risk in February 2012, we expect its DPU yield and price-to-NAV differential to narrow relative to its industrial-property peers.

Major risk: lease renewals from FY13

• We believe Cambridge has a favorable short-term lease-renewal profile, with only about 6.9% of leases (by revenue) up for renewal in FY10-12. However, renewals will be a challenge (in our view), with 93.1% of its leases expiring from FY13, although we believe Cambridge has sufficient breathing room to manage these future expiries through pro-active forward leasing or other measures. We also believe its concentration in the CWT (Not rated)/YCH group (24% of gross revenue) does not pose a major concern if the leases are not renewed as the specifications of the properties are of a high quality and their current passing rents are below market rents, according to management.