Cambridge – CIMB

Acquisition amid a tight market

CREIT has just announced the proposed acquisition of 12 Ang Mo Kio Street 65 for a purchase consideration of S$39.8m. By funding this acquisition withdebt and cash on hand, the leverage ratio is expected to rise to 34.8% upon its completion. Consequently, DPU is expected to be boosted by c.2% in FY15. Onthe back of a tight acquisition market, we view this transaction positively, although the impact on earnings is expected to be limited. We maintain ourHold rating while our DDM-based (discount rate: 8.0%) target price rises slightly to S$0.78 as we price in the marginally higher earnings.

What Happened

Cambridge Industrial Trust (CREIT) has just announced that it has enteredinto a conditional sale and purchase agreement with Freshlane Pte Ltd in connection with the proposed acquisition of 12 Ang Mo Kio Street 65 for apurchase consideration of S$39.8m. The property is a 6-storey purpose-built light industrial building with a GFA of 16,762 sq m and a remaining tenure of36 years. Current occupancy stands at 85%, with two tenants, namely, Nepes Pte Ltd and Singapore Technologies Electronics Ltd.

What We Think

With a cap rate of 6.75% and an expected yield on cost of c.7% (at 100%occupancy), the valued paid for this property is in line with the weighted cap rate of CREIT’s recent valuation (6.5-6.9%). With this acquisition expected tobe fully funded via cash on hand and debt, we believe there will be no capital-raising. Consequently, we expect this acquisition to be yield-accretive, adding 2.1% to FY15 DPU and 2.2% to FY16 DPU, with a leverage ratio of 34.8% upon completion. Given this, together with the strong tenants currently on the property, we view the proposed acquisition positively, although given the value of this asset and the fact that the acquisition will only be completed in 3Q14, the impact on FY14 earnings should be minimal.

What You Should Do

CREIT is offering dividend yields of 7.0% for FY14 and 7.4% for FY15 vs. 7.2% and 7.4% for its peers. On this basis, together with its 1.05x P/BV compared to the sector average of 1.09x and limited impact on earnings from this acquisition, we maintain our Hold rating, with a slightly higher target price of S$0.78 as we factor in the marginally higher contributions from this acquisition to FY15 earnings.