Cambridge Industrial Trust - CIMB Research 2015-12-09: MTB conversions in the offing

Cambridge Industrial Trust - CIMB Research 2015-12-09: MTB conversions in the offing CAMBRIDGE INDUSTRIAL TRUST J91U.SI 

Cambridge Industrial Trust - MTB conversions in the offing 

  • 3Q15 NPI supported by healthy rental reversions and contributions from acquisitions. 
  • Margin pressures and higher vacancies with MTBS conversions in the offing. 
  • Pro-active capital management but gearing of 37.2% caps inorganic expansion. 
  • Dividend yields exceed 8%, which should cap downside. Hold maintained, with unchanged target price. 

Healthy rental reversions and acquisitions support 3Q15 NPI 

  • 3Q15 NPI rose 10.5% yoy to S$21.7m thanks to YTD positive rental reversions (+8.5%) as 718,567 sq ft of space was renewed (c.8% of portfolio), as well as contributions from acquisitions. 
  • We expect rental reversions to moderate further, due to the tougher operating climate. 

MTB conversions in the offing 

  • We understand that nine STBs will be up for renewal in the next 12 months, representing c.17% of total rental revenue. CREIT is expected to convert five of the STBs to MTBs, renew the leases for three STBS and redevelop the last remaining unit. 
  • With MTB conversions in the offing, we expect margin pressures and higher vacancies for FY16. 
  • CREIT posted a slight dip in overall MTB occupancy in 3Q15: Portfolio occupancy dipped to 95.4% (2Q15: 95.5%) while MTB slid to 89.2% (2Q15: 89.6%). 

Pro-active capital management 

  • CREIT has refinanced most of its loans expiring in FY15-16, with no major refinancing until 2017. 
  • As at end-3Q15, it had a weighted average debt maturity of 3.3 years, at an estimated cost of c.3.7%. 
  • The REIT has substantially hedged its interest rate exposure, with 96.5% of its rates fixed over the next 3.2 years. 

Gearing caps inorganic expansion 

  • CREIT’s gearing of 37.2% in 3Q15 suggests that there is limited room for acquisition opportunities. 
  • Given limited yield-accretive deals in Singapore, the REIT has broadened its targets to Australia, Japan and Malaysia. 

Maintain Hold 

  • CREIT trades at dividend yields in excess of 8% which should cap downside. However, we see potential downside risks in our estimates due to conversions and have little reason to be excited on the back of limited inorganic expansion plus rising pressure from MTB conversions. 
  • We maintain our Hold call and DDM-based target price of S$0.73.

LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2015-12-09
CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.73 Same 0.73