Cambridge Industrial Trust - DBS Research 2015-10-23: Brewing Headwinds

CAMBRIDGE INDUSTRIAL TRUST J91U.SI 

Cambridge Industrial Trust - BREWING HEADWINDS 

Property conversions to cause headwinds to occupancy rates. 

• Property conversions (from single-tenanted properties to multi-tenanted ones when the leases expire over FY15-16F account for c.18.6% of revenues. This may mean downside to top line in the near term, given the expected loss of property efficiency and higher vacancy rates when these conversions take place. As such, we forecast CREIT to deliver c.1% CAGR in DPU over FY15-17F. 

Optimal gearing caps upside from acquisitions. 

• CREIT has been active in acquisitions and has been focusing on optimising its portfolio performance through strategic AEIs across various properties which will aid growth in revenues in the coming quarters. 
• With gearing at 37.2%, we believe its capacity for further acquisitions is likely to be capped and thus we have not priced in any further acquisitions in our forecast. 

Pro-active capital management. 

• CREIT has refinanced most of its loans expiring in 2015-2016, diversifying its debt funding sources as a result. As of 30-Sep-15, CREIT had a weighted average debt maturity of 3.6 years at an estimated cost of c.3.6%. The manager has fixed 96.5% of its interest rates over the next 3.5 years. 

Valuation: 

• Our DCF-backed TP is maintained at S$0.61. The stock is trading at a c. > 8.0%, which we believe will cap further downside to share price. 
• Maintain HOLD. 

Key Risks to Our View: 

• Interest rate risk. Any increase in interest rates will result in higher interest payments which will reduce income available for distribution and result in lower distribution per unit (DPU) to unitholders. That said, CREIT has substantially hedged their interest rate exposure.

Derek Tan DBS Vickers | Mervin Song DBS Vickers | Rachael TAN DBS Vickers | http://www.dbsvickers.com/2015-10-23

DBS VickersSGX StockAnalyst ReportHOLDMAINTAIN HOLD0.61SAME 0.61