Cambridge Industrial Trust - CIMB Research 2016-10-26: 3Q16 Results ~ More margin pressure

Cambridge Industrial Trust - CIMB Research 2016-10-26: 3Q16 Results ~More margin pressure CAMBRIDGE INDUSTRIAL TRUST J91U.SI

Cambridge Industrial Trust - 3Q16 Results ~More margin pressure

  • 3QFY16 DPU of 0.99 Scts was in line with our expectation, -18% yoy due to lower income and higher costs. 9MFY16 DPU was 73% of our FY16 forecast.
  • 3QFY16, topline was dragged by property conversions into MTBs and income vacuum from asset sale.
  • Challenging operating conditions to persist, in our view.
  • Balance sheet is healthy with no refinancing due until FY18F.
  • Maintain Hold call with unchanged TP of S$0.59.

Results dragged by lower revenue and higher costs 

  • CIT reported 3QFY16 DPU of 0.99 Scts, -18% yoy due to lower revenue, higher cost and absence of management fees in units. 
  • NPI margin fell by 4.3% pts yoy in 3QFY16 to 72% (3QFY15: 76.3%, 2QFY16: 74.3%) as a result of the additional property costs from more multi-tenanted properties. This was partly moderated by additional revenue from leasing of properties and rent escalations for existing portfolio.

Lower revenue from income vacuum and negative reversions 

  • Gross revenue showed a 2.9% yoy decline to S$27.6m in 3QFY16, negatively affected by conversion of single (STBs) to multi-tenancy (MTBs) properties, divestment of a property and a head lease expiry. 
  • The group renewed 1.2m sq ft of space for 9MFY16 (568,663 sq ft in 3Q) at 4.5% negative reversion, with average portfolio rents staying flat at S$1.27 per sq ft/month. However, tenant retention rose to 86.7% and portfolio occupancy nudged up to 93.6% in 9MFY16.

Challenging operating environment 

  • Looking ahead, we think CIT’s operating performance is likely to reflect the challenging industrial rental market. Around 3.3% of its income is expiring in 4QFY16F. 
  • In addition, 24.3% of income is due to be re-contracted in FY17F, of which 7.3% comes from six STBs. No details have been provided on whether these properties will be renewed or converted into MTBs. 
  • CIT would also continue to update its portfolio and has announced the sale of 2 Ubi View for S$10.5m, at a premium to book value and purchase price.

Capital management 

  • CIT’s gearing stood at 36.9% at end-3QFY16. All-in cost of debt was 3.65% and 88.4% of its interest rate exposure has been hedged. 
  • In Sep 16, it refinanced S$72m loans due in FY17F and extended the weighted average debt expiry to 3.4 years. Post-refinancing, 100% of the trust’s assets are unencumbered and it has no debt due until FY18F.

Retain Hold call 

  • We maintain our FY16-18 DPU estimates, as well as our DDM-based target price of S$0.59. 
  • We keep our Hold call as we expect earnings outlook to remain challenging over the remainder of FY16 and FY17.

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2016-10-26
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 0.59 Same 0.590