Cambridge Industrial Trust - DBS Research 2016-07-25: Riding past operational headwinds

Cambridge Industrial Trust - DBS Research 2016-07-25: Riding past operational headwinds CAMBRIDGE INDUSTRIAL TRUST J91U.SI 

Cambridge Industrial Trust - Riding past operational headwinds

  • 2Q16 DPU of 1.078 Scts in line.
  • Pressure on occupancy and topline given further cut-back in tenants’ space demands.
  • Optimal gearing level imply acquisitions are likely to be limited.

HOLD call maintained, TP raised to S$0.60 as we roll forward valuations. 

  • We maintain our HOLD rating for Cambridge REIT (CREIT), with TP of S$0.60. 
  • Current yields of c.8.0% reflect uncertainty and pressure on CREIT’s top line given the competitive industrial leasing environment. 
  • In addition, there is uncertainty in CREIT's strategy to diversify into Australia and a strategic business review currently undertaken would cap any significant re-rating opportunities for now.

Asset recycling to redeploy capital; looking to Australia. 

  • CREIT has been active in acquisitions, and is 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 its businesses. 

  • The Manager is conducting a strategic review of CREIT business and operations to fulfill its strategy of maximising value for its unitholders of CREIT and has appointed Goldman Sachs (Singapore) Pte. to assist. 
  • The strategic review may open up a myriad of scenarios (M&A, trade sale or even an internalisation), and any step taken should be well received by investors given incremental steps to be taken by the Manager to drive value.


  • Our DCF-backed TP is raised to S$0.60 as we roll forward valuations. 
  • 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 unitholders. That said, CREIT has substantially hedged its interest rate exposure. 

Derek Tan DBS Vickers | Mervin Song DBS Vickers | http://www.dbsvickers.com/ 2016-07-25
DBS Vickers SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.60 Up 0.56