CLT – CIMB

Pandan acquisition kicks in

3Q12 benefitted from acquisitions earlier this year, with net property income up 12.9% yoy. Completion of refinancing led to lower all-in cost of debt; we should see some interest cost savings next quarter. We continue to like the stock for its quality assets and resilient yields.

3Q/9M12 DPU came in slightly below at 25%/73% of our FY12 and 25%/74% of consensus on higher property expenses following rental adjustments. We lower FY12-14 DPUs to factor this in, but raise our DDM-based target price on lower discount rate of 7.7% (2Q12: 8.5%). Maintain Outperform; accretive acquisitions are catalysts.

Another resilient quarter

3Q12 NPI grew 12.9% yoy, trickling down to a 2.3% growth in DPU, as rental contributions kicked in from Pan Asia Logistics Centre and Pandan Logistics Hub. Debt profile was also strengthened following refinancing, with no debt expiring till 2015/16 and all-in cost of debt lowered from 4.28% to 3.57%. We should see some interest cost savings going forward. While gearing inched up on completion of the Pandan acquisition, it remains low at 32.6%.

Potential for growth

We still some potential for acquisition growth from the pipeline of assets from Sponsor. Management has delivered on acquisitions thus far, albeit over a short track record, but surprising us with the size of acquisitions YTD. Organic growth will still be driven by 1.5-2.5% rental step-ups structured into master leases, topped with potential for GFA maximisation or enhancements further down the road when leases expire.

Reasonable price for quality portfolio

Distribution yield stands at 6.8% and 7.1% for FY12/13 on current share price, the highest among industrial S-REITs under our coverage despite a Singapore-centric portfolio of quality assets. We continue to like the stock for its defensiveness from master leases, with one of the longer average lease expiries at 4.1 years, backed by 89% MNC and government entity end users.