Cambridge Industrial Trust - 4Q16 Results Flash ~ Morphing into a Pan-Asian industrial player?
- We reiterate our BUY recommendation on Cambridge REIT (Cambridge) with TP of SGD0.64, which is based on our DDM methodology (CoE: 7.9%, Tg: 0%).
- Cambridge’s 4Q16 DPU declined 12.6%YoY mainly due to the conversion of master leases into multi-tenancy agreements. FY16 DPU was down 12.9% YoY as there was no additional capital distribution and 100% of management fee was paid in units. Excluding these items DPU declined 5.7% YoY. Results were below our expectations accounting for 87% of our full year forecasts.
- FY16 NPI margins declined 3.4ppt due to higher operating expenses from properties converted to multi-tenancy as the master lease expired.
- Despite challenging market management secured leases for 1.6m sq. ft. of space in FY16 (FY15:1.2m sq. ft.). As a result, occupancy improved to 94.7% (FY15: 94.3%) with 88% tenant retention ratio.
- Gearing stands at 37.5% with no major refinancing scheduled till 2H18. All-in borrowing cost stands at 3.71% per annum.
- Portfolio value declined 3.2% with a fair value loss of SGD44.2m due to weak industrial market in Singapore.
- On 18 Jan 2017, Cambridge announced that e-Shang Redwood (ESR) has completed the acquisition of an aggregate indirect 80% stake in Cambridge Industrial Trust Manager and 100% of Cambridge Industrial Property Management from National Australia Bank and Oxley Global. ESR is a leading pan-Asia logistics real estate developer, owner and operator with more than USD5bn of AUM across China, Korea and Japan. We are positive on the development as it offers Cambridge a platform to grow into a pan-Asian industrial player when Singapore industrial sector is facing challenges.
- Management has also been active in the capital recycling with the divestment of two of its industrial properties at 5%-6% above book value. Looking forward it plans to divest four of its non-core industrial properties in 2017. Cambridge is also looking for acquisition opportunities in Australia where management sees good growth.
- About 21.5% of its portfolio leases are expiring in 2017 and we expect negative rent reversions of 3-7%. For FY16 rental reversion stood at -6.1%.
- Cambridge is currently trading at 0.88x book value and offers yield of 7.5%. We are positive on Cambridge's long-term growth with the recent change in REIT manager.