Press Release

CIT maintains stable performance in 1Q2015

• Net property income up 11.9% year on year (“y-o-y”)
• Improved  Weighted Average Lease Expiry  (“WALE”)  of  4.2  years  provides  additional income stability
• Proceeds  from secondary  offer of S$55  million 4-year  fixed rate  MTN1 used to retire S$50 million MTN due in March 2015
• No  major refinancing  due till  June  2016 with approximately  85% of debt cost fixed for an average of 2.3 years
• Distribution of 1.225 cents per unit for 1Q2015

Presentations

Financials

Weaker underlying conditions

CIT’s 4Q14 results were in line with our forecast, with its FY14 DPU accounting for 101% of our full-year estimates. While we see continued topline growth, we expect NPI margins to stay weak in FY15 as another two properties await conversion into multi-tenanted buildings (MTBs). Given this and the slow FY15 outlook in the leasing market of the industrial sector, we fine-tune our FY15-16 earnings forecasts downwards by 0.9-1.7%. This lowers our DDM-based (discount rate: 8.3%) target price to S$0.68. Maintain Hold.

4Q14 results in line

Cambridge Industrial Trust’s (CIT) 4Q14 results were in line, with its DPU accounting for 25% of our FY14 estimate. For the full year, CIT renewed 1.9m sq ft of leases, representing 23.8% of the REIT’s portfolio, with a positive rental reversion of 4.6%. During the quarter, it completed the acquisition of 16 International Business Park and the AEI at 21B Senoko Loop (Phase II). Occupancy as at 31 Dec remained stable at 96.0% (unchanged from 3Q14).

Lower NPI margins

Though CIT’s topline increased by 3% yoy, DPU rose only 0.6% yoy. This was attributable to the continual softening in NPI margins (74.5% in 4Q14 vs. 81.4% in 4Q13) as management converts more buildings into MTBs while rental rate has yet to catch up. In 4Q14, DPU was in part supported by management taking on 100% of its management fees in units (rather than cash) to bridge the gap of lower income as a result of these conversions. If the same amount of distribution via capital in 4Q13 was paid out in 4Q14 and management fees were fully paid in cash, DPU in 4Q14 would have dipped by c.4.4% yoy, based on our estimation. With another two properties to be converted to MTB, coupled with a soft outlook for the industrial leasing sector, we expect CIT’s NPI margins to remain soft in 2015. Given its leverage ratio of 34.8%, the REIT is expected to grow via inorganic means in FY15; though that remains a challenging avenue in view of the current high asset valuations and tight acquisition market.

Maintain Hold

We see little reason to be excited over CIT given its still-weak NPI margin and limited room to expand inorganically. Currently, CIT offers a FY15 dividend yield of 7.4% – a level similar to its peers. Maintain Hold.

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.

Growth Strategy Intact Despite Change of CEO

Last Friday, Cambridge Industrial Trust reported 4Q13 results that were in line, as well as the disappointing – although unsurprising – resignation of CEO Christopher Calvert. Its portfolio’s performance as a result of recent acquisitions and AEIs are expected to maintain its strong DPU growth going into FY14F. We maintain our FY14F DPU of 5.4 cents, for an implied 7.7% yield. Maintain BUY on CREIT, with our

SGD0.81 TP offering a potential 16% upside.

Outgoing CEO Christopher Calvert has delivered strong shareholder returns over the last 5 years by re-modelling and re-sizing the portfolio he inherited into one of the best performing industrial REIT in recent years. CREIT has posted total shareholder returns (including distribution) of 300% since the beginning of 2009, outperforming its peers and the wider STI market index. We wish Calvert well as he moves on to the next phase of his professional career in Australia to be closer with his family. Calvert has agreed to remain on board pending regulatory clearance with regard to the incoming CEO and subsequent disclosure. We have no doubt that the strong team which Calvert has nurtured will continue to manage the

portfolio with a view of maximizing asset returns with a reasonable risk profile.

4Q13 results broadly in line with expectations. The group’s revenue of SGD23.3mil (-3.1% y-o-y) brought its FY13 gross revenue to SGD96.5mil (8.4% higher y-o-y), just below our SGD98mil estimate. Net property income for the full year came in at SGD80.4mil (+5.5% y-o-y), 4% below our expectation, but the overall FY13 DPU of 4.976 cents (+4% y-o-y) is in line with our forecast of 5 cents

No changes to our FY14F earnings and DPU estimate of 5.4 cents. This is in view of the ongoing asset enhancement initiatives as well as full year contribution of CREIT’s four acquisitions last year. Going into FY14 and FY15, the group’s growth strategy appears to be well supported by its low gearing of 28.7% with all-in interest expense of 3.6% and 83% fixed, and a further 31% of its portfolio unencumbered (SGD350mil). Maintain BUY on CREIT, with a target price of SGD0.81.

Year of repositioning

CIT’s 4Q13revenue and NPI growth came in at -3.1% yoy and +1.8% yoy respectively. These results translate into 24% and 25% of our respective 4QFY13 estimates. Together with the previous 9M earnings, full-year revenue and DPU were in line with our expectations, meeting98% and 99% of our respective FY13estimates.Given another proactive year ahead (in terms of managing and repositioning its portfolio) coupled with interest savings and a strong balance sheet, we maintain our Add call with an unchanged DDM-based target price (discount rate: 8.2%) of S$0.80.

A respectable set of results amid a tough year

Cambridge Industrial Trust (CIT) just announced its 4Q13 results with revenue and DPU being reported at S$23.3m (-3.1% yoy) and 1.25S¢ (+1.8% yoy) respectively. In FY13, gross revenue increased by 8.4% to S$96.5m while NPI rose to S$80.4m (+5.5%). During the said period, CIT completed four acquisitions totalling S$92.7m, commenced two AEIs totalling S$58.2m – both on track for completion in 4Q14 – and divested three non-core assets totalling S$45.4m. Occupancy for its portfolio remained high at c.97%.

Defensive balance sheet

During 4Q13, CIT entered into S$250m of interest-rate swaps to fixed interest rates, with all-in cost reduced to 3.6% per year (from 3.9%) and 83% of debt under a fixed rate for the next two years. Through this exercise, we expect CIT to save c.S$7m in interest over FY14. CIT has a healthy balance sheet currently, with a leverage ratio of 28.7% and no major refinancing due till Jun 2016.

Strong REIT but slight concern with change of CEO

In our view, through proactive management of both assets and capital, CIT has become a stronger REIT and is well positioned for any acquisition opportunities. In addition, with limited refinancing needs in 2015 (S$50m), CIT is well shielded from any potential rise in interest rates over the next two years. Looking ahead, we expect CIT to divest a further 2-3 non-core assets while, at the same time, completing two more acquisitions and two AEIs. However, the resignation of the CEO, Mr Chris Calvert (without a clear successor), may put short-term pressure on the share price as the market awaits further information. Maintain Add.