A more stable outlook
- CIT’s 2Q15 results were in line with our forecast, with the quarter’s DPU accounting for 24% of our full-year estimate and 1H DPU comprising 48% of our FY15 estimate.
- With only one property to be converted while the other scheduled for AEI in FY15, we expect NPI margins to stabilise at the current level.
- Given this and the flattish outlook of CIT on the back of a sluggish leasing market in the industrial sector, we maintain our Hold rating with a slightly higher DDM-based target price of S$0.73 as we roll-forward our earnings estimate.
2Q results in line with estimates
- Cambridge Industrial Trust’s (CIT) 2Q15 results were in line with our estimates, with revenue rising by 13.2% yoy while DPU dipped slightly by 2.1% yoy.
- The stronger topline was mainly attributed to additional contributions from properties acquired and completed AEIs in FY14.
- For 1H, of the 497,600 sq ft of leases renewed, a positive rental reversion of 6.3% was achieved.
- Occupancy as at 31 Mar rose slightly to 95.5% vs. 95.0% in 1Q15.
Fewer upcoming conversions
- CIT’s DPU’s weakness was largely a result of the enlarged share base from the distribution reinvestment plan.
- We noted that NPI margins in this quarter stabilised at 77.7% (vs. 77.3% in 1Q15) as the number of conversions from single-tenanted buildings to multi-tenanted buildings shrank.
- For the rest of the year, with only two more properties to be converted into MTBs, we believe that NPI margins should hover around the current level.
- Furthermore, with occupancy rates from the converted buildings starting to creep upwards, we are confident that CIT’s portfolio will remain stable for the rest of 2015.
- Given its leverage ratio of 37.2%, on the back of a tight acquisition market, we believe that the REIT will continue to grow marginally by conducting AEIs in some of its projects.
- With no major debt due to be refinanced till 2017 and 96.5% of its interest expense hedged at a fixed rate for the next 3.5 years, CIT is well shielded from a potential rate hike.
Maintain Hold
- Though the outlook is stable, we see little reason to be excited over CIT given the limited room to expand inorganically on the back of a sluggish rental market.
- CIT now offers a FY15-16 dividend yield of 7.3-7.5% - a level similar to its peers.
- Maintain Hold.
(PANG Ti Wee; LOCK Mun Yee; TAN Xuan, CFA)
Source: http://research.itradecimb.com/
