Continue to strengthen through acquisitions

Full year results in-line with expectations. Cambridge Industrial Trust (CIT) released its 1Q12 results yesterday posting gross revenue and net property income of S$20.9m (+8.2% YoY) and S$18.0m (+8.4% YoY) respectively. The increase in revenue is mainly attributed to additional contributions from the five acquired properties over the last twelve months. DPU for the quarter came in at 1.171 S¢ (+17% YoY), equivalent to 24% of our FY12 DPU estimate. Going forward, we expect CIT’s DPU to continue to remain strong from 1) additional contributions from 25 Pioneer Crescent and 16 Tai Seng Street, 2) resilient industrial rental rates and 3) the completion of the BTS project at Tuas in 2H12. We maintain our BUY call on CIT with an unchanged DDM based (COE: 10.7%, terminal growth: 1.0%) TP of S$0.605. With CIT currently trading at 7.5% spread vs the pre-crisis historical mean of 4.6%, our TP represents a spread of 6.7% posting a potential upside of 10%

Multiple acquisitions and upgrading to improve portfolio performance. Since June 2011, CIT has completed five acquisitions, and divested its holdings at 7 Ubi Close. Recently, the company further indicated an acquisition at 16 Tai Seng Road. In addition, together with the completion of the BTS project at Tuas View Circuit by 2H12, we expect CIT’s DPU to grow by c.0.5S¢ (+12%) in FY12.

Pro-active management with room for slight positive reversion. CIT’s management continues to be pro-active in engaging tenants early on negotiations of lease renewals in a bid to reduce lease concentration. Average lease expiry profile for FY13/14 continues to decline to 48.4% from 53.4% YoY. Currently, CIT’s portfolio passing rent is S$0.95 psf/month; below current spot rents of S$1.00 – S$1.05 psf/month, with rents expected to re-rate slightly upwards upon lease expiry.

Acceptable gearing amid multiple acquisitions. Management has been undertaking a portfolio reconstitution exercise since beginning of 2010, divesting nonperforming assets and redeploying capital into yield accretive acquisitions. Amid multiple acquisitions, gearing has been pared down from 42.6% in Dec 2009 to 35.9% in Mar 2012. With an internal target gearing 40%, CIT will still has room to raise S$47.6m for further acquisitions.

Stable rental rate with respectable growth expected in 2012. As the outlook of industrial rental rates continues to remain stable together with a strong pipeline of acquisitions, we maintain our BUY rating with a TP of S$0.605.

New acquisition

Acquisition of 16 Tai Seng Street. The management of Cambridge Industrial Trust (CIT) just announced the acquisition of the property at 16 Tai Seng Street for a purchase consideration of S$59.25m. 16 Tai Seng Street is a purpose built, contemporary, with a current gross floor area of approximately 16,282 square metres. On completion of the acquisition of the property (2Q12), CIT will lease back the property to the seller for a period of six years. This acquisitions, which is expected to bring in an additional dividend of 0.16S¢, will be funded through a combination of 40% debt from the Acquisition Term Loan Facility and 60% cash from the net proceeds from the Medium Term Note (the “MTN”) Issuance. We maintain our BUY call with a DDM-based TP S$0.605.

Well located, purpose built industrial property. 16 Tai Seng Street is a purpose built, contemporary, five storey industrial building with an ancillary showroom, with a current gross floor area of approximately 16,282 square metres. Located in the central part of Singapore, it is near to the Tai Seng MRT station and easily accessible by the Central Expressway as well as the Pan Island Expressway. 16 Tai Seng Street is a JTC leasehold estate of 30+30 years tenure commencing from 4 July 2007.

Further extension of property by seller. In addition, the seller will be undertaking alterations and additions (A&A) to construct additional floors which will increase the gross floor area of the subject property from approximately 16,282 square metres to approximately 19,878 square metres. Upon completion, a further sum of S$13.08m will be paid for the extension on the property. The A&A Works are expected to be completed within 12 months (2Q13) from the date of completion of the acquisition.

Positive view on acquisition. We view this acquisition positively as the company is able to gain a spread of 2% (4.5% interest rate incurred due to MTN and term loan vs an average cap rate of 6.5%) through this action with no dilution to shareholders’ equity. We maintain our BUY call with a TP of S$0.605.

Cambridge trust buys Nobel’s Tai Seng property

$72.3m price tag includes $13.08m for additional space

CAMBRIDGE Industrial Trust (CIT) is acquiring Nobel Design Holdings’ Tai Seng Street property for $72.33 million. The price includes $13.08 million payable to the seller for works to be carried out to increase the gross floor area.

The two Singapore-listed companies have also agreed to a leaseback agreement which will see Nobel Design leasing the property for six years, thus providing a stable and secure income stream for the trust.

‘Assuming that the acquisition, including alterations and additions works, had been effected on Jan 1, 2011, the pro forma financial impact on both the earnings per unit and distribution per unit for FY2011 are 0.16 cents,’ said CIT.

The purchase was well received by analysts at DMG Research and RBS, who have maintained their ‘buy’ recommendations on CIT.

Currently, the corporate headquarters of Nobel Design, the purpose-built contemporary five-storey industrial building has an ancillary showroom and measures 16,282 square metres.

Nobel Design will undertake alterations and additions to construct additional floors, which will provide more logistics and showroom space for the company, increasing the gross floor area to 19,878 sq m.

Construction works are scheduled to be completed within 12 months after the expected completion of the acquisition by the second quarter of 2012.

CIT intends to fund the acquisition through a combination of debt via the acquisition term loan facility and cash from the medium term note (MTN) issuance announced on Tuesday.

The $50 million fixed rate notes issued under the $500 million MTN programme will bear an interest rate of 4.75 per cent per annum payable semi-annually in arrears and will mature on March 13, 2015.

‘We view this acquisition positively as the company is able to gain a spread of 2 per cent, through this action with no dilution to shareholders’ equity,’ said TiWee Pang, an analyst with DMG Research.

Nobel Design, which had originally intended to keep the property as a long- term investment, said it was selling the property to free up capital for business expansion.

Assuming the sale of the property (including additional and alteration works) was completed at the end of fiscal year 2011, the proposed sale price represents an excess of $54.56 million over the book value.

Nobel Designs intends to use the proceeds from the sale to strengthen its balance sheet, expand business, pay the expenses involved in the construction of additional floors, and reduce its bank borrowings.

Furthermore, by entering into the lease agreement, Nobel Designs will have continuous use of the premises with no disruption to its normal business operations.

The acquisition will be CIT’s maiden property in the 15-hectare Paya Lebar iPark precinct, which is JTC’s test-bed for the next generation industrial parks featuring green open spaces and specially designed buildings.

‘Given the strong tenant profile and location of the property, we believe that this acquisition will help to further improve the trust’s overall portfolio quality,’ said RCB’s analyst Bryan Lim.

The property has a 30- year tenure expiring on July 3, 2037, and an option to extend for another 30 years.

CIT said it was acquiring the ‘high-quality industrial asset’ as it will further reduce the group’s reliance on any single asset and tenant.

Based on the rental income for December 2011, the acquisition will increase CIT’s weighted average lease expiry profile from 3.3 years to 3.4 years.

Cambridge Industrial Trust 4Q11 Results Review

Full year results in-line with expectations. Cambridge Industrial Trust (CIT) released its FY11 results posting a gross revenue and distributable income of S$80.4m (+8.3% YoY) and S$50.4m (+12.7% YoY) respectively. NPI rose 6.2% to $69.1m on the back of higher rental income. DPU for the 4th quarter was reported to be 1.118 S¢ (+3.3% QoQ) bringing the entire year’s DPU to 4.237 S¢ (-13.4% YoY). The drop in DPU was mainly due to the enlargement of share base as a result of April 2011 rights issue. Separately, by completing the acquisition of 3C Toh Guan Road East, we expect the property to contribute c.0.15S¢ to FY12 DPU. Concurrently, by divesting 7 Ubi Close, CIT is able to put the acquired capital to better future investments. We maintain our BUY call with a DDM-based TP S$0.605, which posts a potential upside of c.20%.

Divestment of 7 Ubi Close. As part of the company’s efforts to recycle its capital for future investment opportunities, CIT has completed its divestment of 7 Ubi Close at S$18.7m. This price is a 2.2% premium to the latest valuation of S$18.3m as at 31st Dec 2011.We view this divestment positively as this is the only property in CIT’s portfolio which land lease is due to expire in less than 15 years.

Newly completed acquisition to begin contribution in 2Q12. CIT completed the acquisition of 3C Toh Guan Road East at S$35.5m on 30th Jan 2012. This industrial building adds another 192,864 sq ft of GFA to CIT’s portfolio and is currently leased to an anchor tenant for 3 years with an option to renew for a further 3 years. We expect this newly acquired property to contribute 0.15 S¢ to FY12 DPU.

Positive views on DPU growth in FY12. We view these results and new growth strategies positively and maintain our BUY call with a TP of S$0.605. Although CIT’s FY11 DPU has fallen by 13.4% YoY, the contribution from properties previously acquired together with these new strategies should allow CIT’s DPU to pick up in FY12.

After meeting with the management of Cambridge Industrial Trust (CIT) recently, we believe FY12 would be one of the most exciting years for CIT since listing in FY06. With the acquisitions of 4 properties, DPU is expected to grow by c.12% in FY12. Although consensus expects a slowdown in Singapore’s economy in FY12, we believe the rental rate of industry property will remain resilient, following our sensitivity study of industrial rental rate vs Singapore’s PMI. Maintain BUY as CIT is currently trading at an undemanding spread of 8.2% vs pre-crisis spread of 4.6%.

Forecasted FY12 DPU to increase by c.12% amid hard times. During Jun-Jul 2011, CIT completed three acquisitions, namely, 4 & 6 Clementi Loop, 60 Tuas South Street 1, and 5 & 7 Gul Street 1. As indicated by management, the acquisition of the 4th property at 25 Pioneer Crescent will be completed by 1Q12. These acquisitions are expected to contribute 0.2-0.3 S¢ in DPU for FY11-FY12 respectively. Concurrently, the completion of a BTS project at Tuas by early 3Q12 is expected to bring in a high NPI yield of c.15%. while the property at 25 Pioneer Crescent is expected to bring an additional gross yield of 8% to the group.

Industry rental rate resilient despite slowdown in economy. Although Singapore’s economy is expected to soften in FY12, our sensitivity study of industrial rental rates vs Singapore’s PMI demonstrated that the industrial rental rate will most likely remain flattish (assuming the global economy will not fall into another economic crisis as the one that took place in FY08) during this period.

Maintain BUY with TP of S$0.595. Although CIT’s FY11 DPU is expected to fall by c.13% YoY; due to the enlargement of share base as a result of April rights issue, the contribution from abovementioned projects should allow CIT’s DPU to pick up in FY12. We maintain our BUY call with TP of S$0.595 (COE: 10.1%, TGR: 1.0%) posting an potential upside of 22.7%.