Cambridge Industrial Trust: S$0.28 BUY (TP: S$0.49) - Change at the Helm, Refinancing Overhang Removed

source: dmg

Cambridge Industrial Trust (CIT) has appointed Christopher Dale Calvert as the new CEO of Cambridge Industrial Trust Management (CITM), CIT’s REIT manager. While we reckon that CIT could gain from Christopher’s vast array of expertise in various segments of the property sector, we note that aside from his 1-year stint as CEO of Macarthurcook Industrial REIT, the bulk of his real estate experience evolved around the Australian market. However, as the previous CEO will remain with CITM, we believe CIT can still benefit from his wealthier experience within the Singapore industrial property sector. Additionally, we think that the new appointment could signify CIT’s intention to look into cross-border assets, as well as further enhancing its Australian identity. On a separate note, CIT has agreed to the terms of an S$390.1m syndicated 3-yr term loan from RBS, HSBC and nabCapital. With an effective annual interest rate of 6.6%, the loan will be used to refinance CIT’s all existing debt facilities of S$490.0m, of which it has drawn S$369.2m. While the agreed interest rate is higher than our assumed estimates of 5.6%, we believe this is reasonably lesser than what the market was pricing in (we forecast to be 10 – 12%). Our last sensitivity analysis has shown that for every 0.5% increase in funding cost, DPU would head down by 0.22¢. Until the final facility documentation is agreed and loan drawdown, we are maintaining our DPU estimates and fair value. We conjecture that CIT’s successful debt refinancing is an encouragement for S-REITs as a whole. Even though it is a smaller-cap REIT, CIT was able to secure a clean debt (which we view as most optimal amongst all refinancing options despite the higher funding costs eating into DPU), thus not risking a potential share dilution from issuance of equity or convertible bonds, or asset sales to pare down debt levels. More importantly, as CIT is the REIT with the first major loan due for refinancing in 2009, we believe that this event could be a harbinger of better things to come for other REITs with major debt due in 2009. The removal of the refinancing overhang is music to the ears of existing unitholders, and we thus advise prospective investors to buy the stock on its relatively higher yield of 17 - 21% compared to the sector average of 13 – 14%. Maintain BUY at S$0.49.

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned