Cambridge Reit’s net 8.8% above forecast

CAMBRIDGE Industrial Trust (CIT), a real estate investment trust, yesterday said that its distributable income in the quarter to March 31 came to $7.4 million, exceeding forecast by 8.8 per cent. This means 1.434 cents per unit is available to unitholders.

Trust manager CIT Management Ltd said the total income of $7.4 million represents an annualised yield of 7.09 per cent, based on the closing price of 82 cents per unit on March 30.

CIT’s gross revenue came to about $11 million, with net property income of $9.4 million. The trust said the higher gross revenue for the quarter was due to rental revenue from two properties acquired during the quarter – 63 Hillview Avenue and 55 Ubi Avenue. Independent valuers priced the two at $91 million.

Net property income was 5 per cent higher than forecast, due to higher revenue and lower actual property expenses of $1.6 million, due mainly to lower land rent, property tax and non-routine expenses.

CIT said it expects to deliver the projected yield and is on track to increase its portfolio through further acquisition of properties.

The management company’s chief executive, Wilson Ang, said: ‘Besides completing the acquisition of two new properties this quarter, we have also announced four option agreements worth $58.3 million which, upon completion, will contribute an additional annual gross revenue of $5.71 million.

‘Together with signed MOUs worth $115 million as at March 31, 2007, we are targeting to acquire approximately $500 million worth of properties this year.’

Acquisitions Driven Growth

1Q07 Results. 1Q07 net income available for distribution was 8.8% higher than prospectus’s forecast, giving a DPU of 1.43 cts. Annualised DPU of 5.82 cts was 13.6% higher than the forecasted DPU of 5.12 cts. 1Q07 DPU increased slightly by 0.8% QoQ, mainly contributed by the 2 light-industrial properties acquired for S$91.0m during the quarter. The ex-date of the distribution of 1.43 cts per unit is on 30 Apr 07. This represents an annualized current yield of 6.7%.

CIT’s investment properties under management increased to 29 properties, valued at S$622.0m with 475,374 sqm of NLA. As of 31st Mar 07, portfolio occupancy remained 100% with a weighted average remaining lease term at 7.1 years. The weighted average land lease of CIT’s properties portfolio (excluding freehold property) is 41 years. S$58.3m worth of options agreement have been signed, in addition to S$115m of Memorandum of Understanding (MOU) Agreements.

Capital Management. 65.0% of the outstanding borrowings are fixed, with 0.32 years to expiry. This is positive for CIT as interest rate has been decreasing. The bridging loan facility of S$400.0m has been replaced by a Variable Funding Note (VFN) structure of S$390.0m and an overdraft facility of S$10.0m. As of 31st Mar 07, total loan under VFN is S$281.7m, representing a gearing ratio of 44.7%.

Valuation. Using Dividend Discount Model (DDM), we increase our derived fair value to S$0.99. This translates to a 6.0% yield and a price to net asset value of 1.48x for FY07F. We conservatively assumed S$500m worth of acquistions till FY08F. These acquisitions are assumed to be funded by S$200m worth of equity placement and 300m worth of debt, working out to an optimal gearing of 45.3% after acquistions. We maintain Buy with a 17% return.

Cambridge Industrial Trust acquires 28 Senoko Drive for S$12.0 million

25th April 2007, Singapore – Cambridge Industrial Trust (“CIT”) announced that it has signed a Put and Call Option Agreement to acquire 28 Senoko Drive (the “Property”) for S$12.0 million from SGX-listed company Tat Seng Packaging Group Ltd (“Tat Seng”).

The acquisition is expected to be financed by debt or alternative funding sources in line with the Manager’s capital management strategy to optimize the funding of the Trust.

Mr Wilson Ang, Chief Executive Officer of the Manager, said, “We are pleased to partner Tat Seng in this sale and leaseback deal. Tat Seng has a long history in the paper industry with sound financial standing. The 15 years lease term of the property shows the strong commitment by Tat Seng. As a result, this transaction brings our weighted average lease term from 7.41 years to 7.67 years.”

Tat Seng’s Managing Director, Mr Loh See Moon said,” We are pleased to enter into this transaction with Cambridge Industrial Trust as it provides an opportunity for Tat Seng to unlock the value of the Property and enable our resources to be more efficiently redeployed towards the expansion of our business.”

General Description of the Property

Completed in March 1997, the 4-storey ancillary office with an extended single storey warehouse/industrial block sits on a land area of 20,070.9 square metres and has a gross floor area of 14,803.0 square metres. The Property has a land lease duration of 30 years with effect from 16 Dec 1979, with an option to renew for a further term of 30 years.

Located along Senoko Drive, off Admiralty Road West and within Woodlands East Industrial Estate. The Property is approximately 25.5 km away from the city centre at Collyer Quay. Public transport facilities are available along Admiralty Road West and the Admiralty MRT is about 4 km away.

Upon completion of the Sale and Purchase, Tat Seng will leaseback the Property for a 15-year term. The rental escalation is 7% on the commencement of the fourth, seventh, tenth and thirteenth year. Tat Seng will bear the cost of maintaining the Property while CIT will bear the cost land rent and property tax.

Cambridge Industrial Trust acquires 9 Bukit Batok Street 22 for S$18.3 million

24th April 2007, Singapore – Cambridge Industrial Trust (“CIT”) announced that it has signed a Put and Call Option Agreement to acquire 9 Bukit Batok Street 22 (the “Property”) for S$18.3 million. The acquisition is expected to be financed by debt or alternative funding sources in line with the Manager’s capital management strategy to optimize the funding of the Trust.

Mr Wilson Ang, Chief Executive Officer of the Manager said, “Bukit Batok is a niche industrial locale with an immediate catchment to manpower due to its close proximity to the Bukit Batok HDB estate, a major housing estate in Singapore. Although the building is more than 10 years old, considerable Addition and Alteration works were completed recently in 2006, enhancing the value and marketability of the Property. More importantly, the Property provides a stable income stream and will further enhance the current CIT portfolio.”

General Description of the Property

Completed in 1994, the 5-storey industrial building with a basement carpark sits on a land area of 6,258.2 square metres. The Property has a gross floor area of 14,666.0 square metres. Inaddition, it has a long land lease duration of 30 years effective from 1 February 1993, with an option to renew for a further term of 30 years.

The Property is located along Bukit Batok East Avenue 6 and is about 5 to 7 minutes’ walk to the nearby Bukit Batok MRT station. More importantly, it is easily accessible to other parts of the island via the Pan-Island Expressway (PIE).

Upon completion of the Sale and Purchase, Ascender Investment Pte Ltd (“Ascender”) will leaseback the Property for a 7-year term. The rental escalation is 5% at the beginning of the third and fifth years. The Property houses tenants from industries such as electronic manufacturing, trading and furniture sectors. Ascender will bear the cost of maintenance of the Property while CIT will bear the cost of land rent and property tax.

Defensive with growth

Cambridge Industrial Trust (CIT) stands out as most defensive amongst industrial S-reits. FY07 yield of 7.3% is a significant 90-290bps above its comparable peers and backed by a stable income stream. The low P/book NAV of 1.22x indicates little acquisition upside have been factored into share price despite a visible asset pipeline. Rewarding partnerships with logistics services supplier CWT and Mitsui as well as wide business networks, have and would continue to supply a ready stream of new purchases. Acquisition-led growth coupled with organic expansion should translate to a DPU Cagr of 7-8% over the next 2 years. Amongst industrial S-reits, CIT has the greatest scope to enhance its properties which could boost asset backing and overall yields in the medium term. Our DCF-backed price target of $1.01 translates to a potential absolute return of 30%. Recommend buy.

Industrial and logistics-focussed reit. Cambridge Industrial Trust (CIT), an industrial and logistics-focussed reit has one of the most defensive income profile. Long rental contracts ensure sustainable earnings while higher-than-industry-average security deposits would iron out any rental fluctuations from tenant movements.

Growth via acquisitions. Its objective to expand asset base by $500m pa is within reach. In addition to the $119m worth of new buys, it has the first right of refusal and last look at CWT’s assets within the first 3 years of listing. Of the 2.3-2.6msf pipeline, 1.2msf are scheduled to complete this year. Beyond this, CIT can tap from C & P Holdings’ assets.

Inbuilt organic engine. It is well placed to leverage on the rising industrial market with inbuilt rental escalation clauses of 5-7% every 2-3 years. An estimated 78% of portfolio space is up for renewal in FY08, translating to a 4% organic increment to DPU.

The RNAV angle. A portion of CIT’s assets can be redeveloped to maximize floor area. We reckon rebuilding only those properties with <1x plot ratio to their maximum potential, could raise total GFA by 34% and add 10cts or 15% to asset backing, based on current levels. More importantly, these additions do not incur corresponding land costs and returns from these improvements should further enhance overall portfolio yields. These have not been factored into our present estimates.

Attractive risk-reward ratio. CIT offers value in view of its high yield, low beta and defensive attributes. At low P/book NAV of 1.22x, little acquisition expectation appears to have been built into share price and any newsflow should likely surprise on the upside. At our DCF-based price target of $1.01, assuming increasing asset base by $500m over the next 12 months, yield would still be attractive at 5.9%. Recommend buy.