Cambridge – Phillip

Full Year 2010 Results

•Full year revenue of $74.2 million, net property income of $65.1 million, distributable income of $44.7 million.

•4Q10 DPU of 1.193 cents, bringing full year DPU to 4.892 cents.

•Buy for attractive yield of 9.4%, maintain target price of $0.61

Results slightly better than forecast

Results came in slightly better than our forecast. Revenue and DPU came in 2.3% and 4.8% higher than our forecasts respectively. However growth was flat on a y-y basis. Full year revenue was $74.2 million (-0.3% y-y), net property income was $65.1 million (flat y-y) and distributable income was $44.7 million (+1.1% y-y). Full year DPU was 4.892 cents (-8.7% yy). The flat to slight y-y drop was mainly attributed to the loss of revenue from the divested assets. During the year, Cambridge sold $68.1 million worth of assets. On the other hand, the decline was mitigated through addition of $70.8 million of properties Cambridge purchased. DPU dropped mainly due to larger unit base arising from two rounds of private placement to raised $$90.4 million with the issuance of 178 million units.

Quarterly results review

Revenue was affected in FY10 due to the gradual divestment of assets. However revenue rebounded in 4Q10 from the contribution of the acquisitions. Quarterly DPU displayed a corresponding trend. DPU was also affected due to the larger unit base arising from the private placement.

Portfolio update

Property portfolio value stands at $928.5 million as at 31 Dec 2010. This follows a $48.2 million upward yearly revaluation of the portfolio, consisting of 43 properties. Cambridge still has $22 million of assets earmark for divestment. Gearing is 34.7% with total debt of $339.2 million and will reduce to 33.4% as the manager has committed to pay down $20 million on 17 Feb 2011.

On a separate note, 3 properties are affected in varying degrees due to the construction of the Tuas West MRT extension and will be repossessed by the Singapore Land Authorities by 2013. We estimate the pro-rated valuation of the affected land area is $54.5 million.

Conclusion

Results came in within our expectations. We had noted the impact of lower DPU due to loss of income from divested assets as well as dilution from a larger unit base in our previous reports. Cambridge is almost done with the divestment program. The REIT should begin accretion from 2011 given that management had outlined their expansion strategy. We felt the compulsory land acquisition came as a derailment to the strategy as we do not think the 3 properties are part of the intended divestment assets. Nevertheless we are forecasting this year DPU to be 4.864 cents which translate to an attractive 9.4% dividend yield. We are maintaining our target price of $0.61, but upgrading our recommendation to buy in view of the high yield.