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Cambridge Industrial Trust - RHB Invest 2016-05-03: A Misunderstood REIT

Cambridge Industrial Trust - RHB Invest 2016-05-03: A Misunderstood REIT .SI 

Cambridge Industrial Trust - A Misunderstood REIT

  • Cambridge is a compelling investment as we see value emerging – it is trading at a high FY16F dividend yield of c.9%,and at a c.18% discount to its FY15 book value. 
  • We re-initiate coverage on the stock with a BUY recommendation and a SGD0.64 TP (16% upside).
  • We like the REIT for the following reasons:
    1. Its earnings are resilient as it owns a highly-diversified portfolio;
    2. Potential to unlock a huge sum of cash via its divestments;
    3. Proceeds from divestments could be invested in high-yielding assets.


Crown jewel among the industrial REITs space. 

  • Cambridge Industrial Trust (Cambridge) is the crown jewel among the industrial SREITs sector, despite the general weakness in the overall industrial space. We think that there has been an overreaction to its share price in the past one year (-22.2%), which posts a golden opportunity for investors. 
  • The REIT is currently trading at a high FY16F dividend yield of 8.9%, against its peers’ average of 8.2%. 
  • Additionally, we like Cambridge mainly due to its highly-diversified portfolio and high growth potential via acquiring high-quality assets in Australia.


The most defensive among its kind. 

  • Cambridge is one of the most resilient industrial REITs that an investor could own, as it has one of the most diversified portfolios. It owns a total of 50 industrial assets in Singapore, across different asset classes. 
  • In addition, we note that its risk is further mitigated, as its rental income is the least exposed (37%) to its top 10 tenants, compared to those of its peers. 
  • In the current general weakness of the industrial business, we urge investors to look out for risk mitigation via a wide diversification.


Full steam ahead in Australia. 

  • A huge amount of cash – over SGD161m (23% of its market cap) – could potentially be unlocked as management is well- committed to divesting its non-core assets. 
  • We have identified a total of eight assets, which could be divested with a significant return of c.119%. 
  • We think that this would allow Cambridge to recycle its proceeds into high-yielding assets in Australia, without raising new equity. 
  • Additionally, we think that foraying into the Australian market would strengthen its portfolio, as we expect warehouses to benefit from the booming e-commerce business.


Deep, deep value. 

  • We use a highly-conservative terminal growth of 0% with a cost of equity (CoE) of 7.9% to derive our DDM-derived TP. This implies a c.18% discount to its FY15 book value, and a FY16 dividend yield of 8.9%. 
  • The different valuation metrics suggest that Cambridge is deeply-valued with great growth potential. 
  • We re-initiate coverage on the stock with a TP of SGD0.64, representing a total return of 25.3%.
  • Key risk to our call is weakness in the overall industrial leasing market.





Ivan Looi RHB Invest | http://www.rhbinvest.com.sg/ 2016-05-03
RHB Invest SGX Stock Analyst Report BUY Initiate BUY 0.64 Same 0.64


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