Cambridge – Phillip

There is no change to the story. Revenue growth comes from acquisitions and rental increases. There should not be any significant acquisitions in the near term given the faltering sources of capital from the dismay capital market and tight credit environment. CIT current gearing is 38% and it would be wise not to push the to make acquisitions.

3QFY08 results. CIT reported 3QFY08 results with gross revenue of S$18.3 million (+35.8% YoY), net property income of S$16.2 million (+40.4% YoY) and distributable income of S$11.8 million (+35.5% YoY). DPU however dropped from 1.70 cents to 1.49 cents (-12.4%).

Top concern is refinancing. CIT has S$337 million of debt (91%) that is due in Feb 2009. We are expecting borrowing terms to be a lot more critical and borrowing cost to escalate. We raise our interest cost assumption to an effective rate of 4.78%

Drop in DPU. The main reason for the fall in DPU in this quarter is because management fee was paid out entirely in cash. Although there isn’t a fixed policy on the payout method, this was in contrast to the approximately 63% of fees paid out of new issuance in units in the previous two quarters. On the flip side, management reasoned that new units are dilutive and even more so at depressed price level where a greater number of units have to be issued.

Valuation and recommendation. We do not foresee near term acquisition activities and our gross revenue assumptions remain intact for now, bolstered by built-in rent escalation. We reduce our DPU estimations by 5.2% and 17.6% for FY08F and FY09F respectively mainly due to higher borrowing expenses. Currently CIT trade at close to 65% discount to NAV, which we believe is a reflection of market’s perception to the inherent refinancing risk. Our DCF derived fair value is $0.48 ($0.92 previously). Maintain BUY on valuation basis. Risk to our projections would be falling occupancy level.