We maintain our Hold rating while our DDM-based (discount rate: 8.0%) target price rises slightly to S$0.78 as we price in the marginally higher earnings.

Cambridge Industrial Trust (CREIT) has just announced that it has entered into a conditional sale and purchase agreement with Freshlane Pte Ltd in connection with the proposed acquisition of 12 Ang Mo Kio Street 65 for a purchase consideration of S$39.8m. The property is a 6-storey purpose-built light industrial building with a GFA of 16,762 sq m and a remaining tenure of 36 years. Current occupancy stands at 85%, with two tenants, namely, Nepes Pte Ltd and Singapore Technologies Electronics Ltd.

 

With a cap rate of 6.75% and an expected yield on cost of c.7% (at 100% occupancy), the valued paid for this property is in line with the weighted cap rate of CREIT' s recent valuation (6.5-6.9%). With this acquisition expected to be fully funded via cash on hand and debt, we believe there will be no capital-raising. Consequently, we expect this acquisition to be yield-accretive, adding 2.1% to FY15 DPU and 2.2% to FY16 DPU, with a leverage ratio of 34.8% upon completion. Given this, together with the strong tenants currently on the property, we view the proposed acquisition positively, although given the value of this asset and the fact that the acquisition will only be completed in 3Q14, the impact on FY14 earnings should be minimal.

 

Technical Analysis