CAMBRIDGE INDUSTRIAL TRUST
J91U.SI
Cambridge Industrial Trust - Still Feeling the Pain of Transition
- 3Q16 DPU of 0.987Scts missed expectations due to lower than anticipated margins.
- Occupancy rate of 93.7% at the expense of negative rental reversion of 4.5%.
- JV partner for Australian acquisitions has decided to cease the partnership.
- Maintain HOLD, TP S$0.54.
Transitional pain to continue, HOLD. TP S$0.54.
- Cambridge Industrial Trust (CREIT) remains in the midst of a portfolio reposition in the midst of the current downtown in the industrial space.
- While portfolio occupancy remains fairly high, it is at the expense of declining rents, a painful but justified strategy for the REIT. A couple of road bumps :
- its Australian partner is terminating its joint venture, putting a pause to plans to develop and grow an Australian business; and
- more potential downside to DPUs on the back of more conversions from singletenanted properties to multi-tenanted ones.
- Our TP and estimates are cut by 8% on the back of lower margin assumptions.
- Maintain HOLD, TP S$0.54.
Asset recycling to redeploy capital; looking to Australia.
- CREIT has been active in acquisitions, and is focusing on optimizing its portfolio performance through strategic asset enhancement initiatives (AEIs) and divestments to redeploy capital to higher yielding sources.
- While its Australia JV partner has ceased the partnership, the Manager remains committed to its long-term acquisition strategy in Australia and is actively exploring other opportunities.
Outcome of strategic review key to re-rating.
- The Manager is conducting a strategic review of CREIT’s business and operations to fulfill its strategy of maximising value for its unitholders and has appointed Goldman Sachs (Singapore) Pte to assist in its analysis.
- The strategic review may open up a myriad of scenarios (M&A, trade sale or even an internalisation). Any incremental steps taken by the Manager to drive value should be well received by investors.
Valuation
- Our DCF-backed TP is S$0.54. The stock is offering c.7.4% 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 DPUs.
Derek Tan
DBS Vickers
|
Singapore Research Team
DBS Vickers
|
http://www.dbsvickers.com/
2016-10-26
DBS Vickers
SGX Stock
Analyst Report
0.54
Down
0.600
