■ We expect Cambridge Industrial Trust (CREIT) to announce plans to redeploy its divestment proceeds next month.
■ DPU CAGR of 13% in 2013-15E will be driven by announced acquisitions, enhancement projects, positive rental reversions and interest cost savings from debt refinancing.
■ Other catalysts include the normalisation of EPU in 3Q13 or potential changes to the trust management fee or structure.
■ Reiterate Outperform rating CREIT offers 28% total return ? 20% potential upside to our PT and 7.6% 2013E DPU yield.
■ OUTPERFORM (unchanged)
2013-15E DPU growth of 28%, highest among SREITs: CREIT‟ s announced acquisitions, enhancement projects and positive rental reversions will contribute 15% DPU growth over the next two years. We expect a further 12% growth from SGD 80mn of assumed acquisitions (+7%) and potential interest cost savings (+5%) over the same period. These imply a 2014E DPU yield of 8.9% and a 2013-15E DPU CAGR of 13%.
Trading at 1.0x P/NAV and 21% discount to RNAV: CREIT has underperformed industrial REITs by 6% and is trading at a 21% discount to our RNAV estimate of SGD 0.85/unit.
We see several catalysts for CREIT:
(1) We expect EPU to normalise in 3Q13 after CREIT‟ s 1H13 performance fee had resulted in a 2Q13 EPU of S¢ 0.01
(2) CREIT is one of the few SREITs that do not have its trust manager as its largest unitholder, and unitholders could vote for a change in the management fee structure or the internalisation of the manager. This could potentially be 3-5% accretive to the EPU.
| Share price performance over STI |
Reiterate Outperform with a PT of SGD 0.81: CREIT offers a 7.6% 2013E DPU yield and is one of our top picks among SREITs. Our DDM-derived valuation uses a 3.25% risk-free rate, a 6.5% market risk premium, a beta of 0.85 and a terminal growth rate of 0.75%. Excluding our acquisition and refinancing assumptions, our fair value would be c.SGD 0.75/unit. (Read Report)
Source : Standard Chartered Equity Research
