Cambridge – DBS
CIT to acquire Natural Cool Lifestyle Hub for S$55.2m; to turn Shariah Compliant
Story: Cambridge REIT ( CIT ) announced that it has entered into a put & call agreement to purchase another industrial asset, Natural Cool Lifestyle Hub located at 29 Tai Seng Avenue for S$55.2m. This asset is the first out of two assets (total S$63.8m) that CIT has lined up for future injection into its portfolio and was already highlighted in our initiation report dated 02 July 08.
Point: When completed, CIT’s portfolio will grow to 44 assets with a combined appraised asset value of c S$1.02bn. Post completion of the sale, Natural Cool Investments Holdings Ltd will lease back the asset for a period of 7 years.
We have assumed both assets to be injected into the portfolio by year end. Hence, our FY09 DPU estimate is adjusted upwards by 3% to 6.5 cts, while maintaining our FY08 forecast of 6.2cts.
Relevance: Maintain BUY on CIT with TP revised upwards to $0.92 (from S$0.88). At the current price of $0.64, CIT offers an attractive FY08-FY09 DPU yield of 9.6% and 10.2% respectively.
CIT to turn into a Shariah Compliant REIT In a separate announcement, CIT is seeking
unitholders approval to convert itself into a Shariah compliant REIT.
CIT cites the following benefits:
(a) Capitalising on the rising demand for such products in the REIT domain.
(b) Creating a new investor pool for the REIT.
We note that under Shariah law, CIT will not be able to pay or receive interest. In this regard, CIT has about $369m worth of interest bearing loans and will be seeking advise on arranging a Shariah compliant financing solution in this matter. We await management to advise further on this proposed change.
CCT – Nomura
Forum takeaways
From the Nomura Asia Equity Forum: CCT confirmed that it sees significant rental reversionary potential in the portfolio. While credit markets are tight, management expects no significant refinancing to be needed until March 2009, and is looking to agree terms by end of this year. We see inherent value in the office portfolio and retain our STRONG BUY rating on CCT.
Anchor themes
Assuming office supply will remain tight through 2008F, we expect office rents to peak during 2H08-1H09F, before entering a cyclical decline in 2010F (down 13.7%) and 2011F (down 19.0%), amid increased new supply.
Strong rental reversions are likely to underpin REIT cashflows. That said, growing concern over their ability to refinance debt have seen REITs trade below book. In such conditions investors need to focus on underlying asset values, while REITs with well-located assets should benefit from expectations of rising M&A activity.
Rental reversions, low gearing
Cambridge – Nomura
Forum takeaways
From the Nomura Asia Equity Forum: management indicated that Cambridge Industrial Trust is making significant progress in refinancing and terming out its short-term debt. Given current market conditions and an annualised DPU yield of about 10%, near-term yield-accretive acquisitive growth prospects appear muted.
Stable cashflow and capital management
AREIT – Nomura
Forum takeaways
From the Nomura Asia Equity Forum: A-REIT confirmed it sees significant rental reversionary potential in its industrial portfolio, specifically business/science park buildings. While appreciative of the risks of a slowing economy, occupancy remains well over 90%, with the three-year lease structure underpinning cashflow surety.
Anchor themes
Higher warehouse supply, at 5.3mn sf in 2008F and 2.3mn sf in 2009F (versus the five-year average of 1.7mn sf) at a time of slowing economic activity (2008F GDP growth of 3%) is likely to adversely impact rental expectations and valuations.
Strong rental reversions are likely to underpin REIT cashflows. That said, increased concerns over the ability to refinance debt have seen REITs trade below book. In such an environment, investors need to focus on underlying asset values, with REITs with well-located assets beneficiaries of rising expectations of M&A activity.
Industrial demand still firm
AllCo – Nomura
Forum takeaways
From the Nomura Asia Equity Forum: we view the recent acquisition by Frasers Centrepoint as positive for Allco REIT unit-holders, providing the REIT with a clear asset pipeline and potential for lower funding costs. The core portfolio is exceeding expectations, with the enhancement of Keypoint on track. STRONG BUY.
Anchor themes
While office supply will remain tight over 2008F, we expect office rents to peak in 2H08-1H09F, before encountering cyclical declines of 13.7% in 2010F and 19.0% in 2011F, in light of the increased office supply.
Strong rental reversions are likely to underpin REIT cashflows. That said, increased concerns over the ability to refinance debt have seen REITs trade below book. In such an environment, investors need to focus on underlying asset values, with REITs with well-located assets beneficiaries of rising expectations of M&A activity.
Tiger REIT