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Cambridge Industrial Trust - DBS Research 2016-04-29: Undertaking a strategic review

Cambridge Industrial Trust - DBS Research 2016-04-29: Undertaking a strategic review CAMBRIDGE INDUSTRIAL TRUST J91U.SI 

Cambridge Industrial Trust - Undertaking a strategic review 

  • 1Q16 DPU of 1.112 Scts dropped 9.7% due to capital distribution and fees in units paid a year ago
  • Asset recycling of older assets to deploy capital; Australia could be a new market
  • Strategic review in place to review business


HOLD call maintained, TP reduced to S$0.56. 

  • We maintain our HOLD rating at a lower S$0.56 TP as we reduced our DPU estimates to account for lower-than-expected NPI margins.
  • While yields of > 8.0% are attractive, we believe that top line will remain under pressure in the near term given the competitive industrial leasing environment. 
  • In addition, we see uncertainty in CREIT's strategy to diversify into Australia and a current strategic review being undertaken on its business as a cap on any significant re-rating opportunities.


Asset recycling to redeploy capital; looking to Australia. 

  • CREIT has been active in acquisitions and has been focusing on optimising its portfolio performance through strategic AEIs and divestments to redeploy capital to higher-yielding sources. 
  • The manager has also identified a partner for acquisitions in Australia – Commercial and General (C&G), a leading Australian industrial property specialist. This partnership enables CREIT to gain local knowledge in a new market.


Strategic review of the business. 

  • The manager will be conducting a strategic review of CREIT business and operations to fulfil its strategy of maximising value for unitholders of CREIT and has appointed Goldman Sachs (Singapore) Pte. to assist the manager in its analysis. 
  • While this open up a myriad of scenarios that might come out of the strategic review (M&A, trade sale or even an internalization), we believe that this step will be well received by investors given incremental steps taken by the manager to drive value.


Valuation:

  • Our DCF-backed TP has been reduced to S$0.56. 
  • The stock is trading at a c.> 8.0% yield, 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 unit holders. 
  • That said, CREIT has substantially hedged its interest rate exposure.





Derek Tan DBS Vickers | Mervin Song DBS Vickers | http://www.dbsvickers.com/ 2016-04-28
DBS Vickers SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.56 Down 0.61


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