Cambridge Industrial Trust - CIMB Research 2016-01-15: Lease expiries to peak in 2016

CAMBRIDGE INDUSTRIAL TRUST J91U.SI

Cambridge Industrial Trust - Lease expiries to peak in 2016

4QFY15 results were broadly within expectations. FY15 DPU of 4.8 Scts (-4% yoy) made up 94% of our full-year estimate.
FY15 rental revenue grew 13% yoy, thanks to positive rental reversion of 9.1%.
Due to ongoing AEIs and MTB conversions, we expect NPI margin to bottom to 76.3% in 2016 (2015: 76.8%).
2016 could be a somewhat volatile year as c.22% of its rental income is due for renewal.

Due to the above and in absence of capital distributions, we cut our FY16-17 DPUs by 14-17%.
Hold maintained, with lower DDM-based target price (S$0.57).

Cambridge Industrial Trust (CIT) reported 4QFY15 DPU of 1.14Scts (-9% yoy), which was broadly within our and consensus expectations. The 9% yoy decline in DPU was mainly due to reduced capital distributions compared with the year before. Going forward, we understand that the REIT would not prop up DPUs with distribution from capital. This is also one of the main reasons behind our DPU cuts.

Overall, 2015 was a relatively resilient year for CIT. FY15 rental revenue rose 13% yoy to S$110m, thanks largely to positive rental reversion of 9.1% and above industry average occupancy.
It achieved portfolio average of 94.3% occupancy vs. 90.8% for JTC Industrial.
It also achieved S$1.12 psf for its STBs (single-tenanted buildings) and S$1.45 psf for its MTBs (multi-tenanted buildings), resulting in an overall rent of S$1.27 psf.
Given the upcoming supply-glut we expect forward rental renewals to be flattish.

Supported by revenue growth, FY15 NPI rose 11% to S$77.8m. That said, NPI margins compressed to 76.8% in FY15 from 78.3% in FY14 (4Q15: 75.8%) due to AEIs (21B Senoko Loop, 31 Changi South Ave 2, 3 Pioneer Sector 3, 86 International Road). Given the ongoing AEIs and MTB conversions, we expect NPI to bottom to 76.3% in FY16.

2016 could be a somewhat volatile year for CIT as 22.2% of its rental income would be due for renewal – 9.2% from MTBs and 13% from eight STBs.
Management has guided that of the eight STBs, two will be divested (small assets); four will be renewed; one will be converted to a MTB and the remaining one will go through AEI (est. capex of S$2m).

Given that CIT’s lease expiry will peak in 2016 (which could translate to lower NPI margins), its flattish rental reversions, higher interests expense and absence of capital distribution, we cut our FY16-17 DPUs by 14-17%.
Our DDM-target price is also lowered due to higher COE assumptions (9.4% vs. prev.8.2%).
Hold maintained as we expect some income volatility in 2016.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-01-15

CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.57 Down 0.73