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7/30/2019 020413 Cambridge Ind Trust - DBS
1/17
www.dbsvickers.com
Refer to important disclosures at the end of this reported: OY / sa: JC
BUY S$0.79 STI : 3307.58Price Target : 12-Month S$ 0.93 (Prev S$ 0.75)Reason for Report : Company updatePotential Catalyst: Divestment/acquisitionDBSV vs Consensus: In LineAnalystDerek TAN CPA +65 6398 [email protected]
LOCK Mun Yee +65 6398 [email protected]
Price Relative
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Mar-09 Mar-10 Mar-11 Mar-12 Mar-13
Relative IndexS$
Cambridge Industrial Trust (LHS) Relative STI INDEX (RHS)
Forecasts and ValuationFY Dec (S$ m) 2011A 2012A 2013F 2014FGross Revenue 80 89 95 103Net Property Inc 69 76 82 89Total Return 85 89 56 60Distribution Inc 50 58 60 64EPU (S cts) 2.9 4.0 4.6 5.0EPU Gth (%) (31) 36 16 8DPU (S cts) 4.2 4.8 5.0 5.3DPU Gth (%) (13) 13 4 6NAV per shr (S cts) 62.0 64.7 64.7 64.4PE (X) 27.1 19.9 17.2 15.9Distribution Yield (%) 5.4 6.1 6.3 6.7P/NAV (x) 1.3 1.2 1.2 1.2Aggregate Leverage (%) 35.3 40.7 39.5 39.8
ROAE (%) 5.0 6.3 7.1 7.7
Distn. Inc Chng (%): - -Consensus DPU (S cts): 5.2 5.4Other Broker Recs: B: 5 S: 2 H: 0ICB Industry :FinancialsICB Sector: Real Estate Investment TrustPrincipal Business: CREIT is a REIT which invest primarily in industrialassets located in Singapore
Source of all data: Company, DBS Vickers, Bloomberg Finance L.P
At A Glance Issued Capital (m shrs) 1,224Mkt. Cap (S$m/US$m) 967 / 780Major Shareholders
Franklin Templeton (%) 7.9Free Float (%) 92.1Avg. Daily Vol.(000) 2,377
DBS Group Research . Equity 2 Apr 2013
Singapore Company Focus
Cambridge Industrial TrustBloomberg: CREIT SP | Reuters: CMIT.SI Refer to important disclosures at the end of this report
Immense Value Within
Unlocking hidden value in its portfolio
Sale of Lam Soon Building to result in potentialsubstantial gains
BUY, TP raised to S$0.93
Hidden value to be extracted in its portfolio. The coming
few years could be transformational for Cambridge REIT
(CREIT). With a number of its the master leases rolling off, webelieve it is an opportune time for CREIT to relook at potential
re-development or asset enhancement plans within its
portfolio, which can potentially reap a further 2.6m sqft GFA.
This is a potential 35% expansion in rentable space, which
could raise rental income by up to c44%. While this
redevelopment is likely to take time, additional capital and
further feasibility studies, in our view, it is likely to pay off
handsomely if executed well.
Sale of Lam Soon Building (LSB) to reap handsome
profits. The potential collective sale of Lam Soon Industrial
Buidling (LSB), if completed, is likely to unlock substantialgains for CREIT, which currently owns a 69.2% stake in the
property. As LSB is currently built on land zoned for residential
use and with residential developments in the vicinity trading in
the range of S$1,000-S$1,600 psf, its book value (S$110m,
S$371psf on CREIT balance sheet) understates its true value,
in our view. Our base case scenario of a collective sale,
assumes a fair value of S$277m for LSB, implies an
attributable profit of S$82.3m (S$0.07 / unit) for CREIT.
TP raised to S$0.93. Our forecasts are based on its current
portfolio without taking into account any potential
developments spoken above. We have shown 3 valuation
methodologies (i) DCF on existing portfolio (TP SS$0.78), (ii)DCF on expanded portfolio (TP S$0.88) and (iii) RNAV (TP
S$0.98) to ascertain the underlying value of CREIT and
incorporating various development / asset sale scenarios. Our
TP of S$0.93 pegged to average of the (ii) and (iii), which
incorporates the execution of potential growth initiatives.
7/30/2019 020413 Cambridge Ind Trust - DBS
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Company Focus
Cambridge Industrial Trust
Page 2
Opportunities to create value
Cambridge REIT (CREIT) had been one of the more activeindustrial S-REITS in 2012, acquiring 9 industrial properties at
a total cost of S$280.4m (5 completed over the course of
2012) and at the same time divesting 2 properties over the
course of the year. The trust has also embarked on various
asset enhancement and development projects within its
portfolio. In some cases, it involves intensification of property
plot-ratios, creating additional leasable space for the trust.
These projects are expected to contribute positively to CREIT
earnings in the coming years.
Asset Enhancement projects and Development Projectsundertaken by CREIT
Properties GFA Created(Sqft) Cost(S$) Completion/CompletingAsset enhancement projects30 Toh Guan Road 14,895 8.3 Dec12
4 & 6 Clementi Loop `110,957 23.3 Jan13
16 Tai Seng 38.703 13.1 1Q13
88 International Road 101,932 16.4 2Q13
61.1Asset enhancement projects43 Tuas View Circuit 122,836 13.2 Sep12
70 Seletar AerospaceView
53,729 8.6 Nov12
21.8Source: Company, DBS Vickers
Looking ahead, the manager continues to see opportunities
to grow the trust through acquisitions and selective
divestment opportunities to optimize capital use. We believe
that there are also various development opportunities within
the portfolio which will result in significant upside for unit
holders, if executed upon.
(i) Re-development opportunities within its portfolio.Cambridge REIT (CREIT) will see a significant 44.6% of its
leases (by rental income) up for renewal (15% in FY13;
29.6% in FY14). We note that close to two-thirds of the
leases are from its portfolio of single-tenanted properties.
Many of these properties are purchased back in 2007 or from
its initial portfolio prior to IPO, which over the coming few
years, are coming off the first lease cycle.
The manager has been in active negotiations with the
vendors to renew the leases ahead of expiry; we understand
that some of the master-leases might not be renewed. Whilethis could present potential earnings risk for CREIT as some of
these master-leases might not roll over, we believe these risks
could be mitigated if expiring rents are lower than market
levels, which means that these properties should see an net
uplift in rental income eventually.
Significant number of leases up for renewal in thecoming years
Source: Company, DBS Vickers
Potential developments - Unlocking value through maximisingplot ratios. In the meantime, with the master leases rollingoff, we believe that it is also an opportune time to re-look atpotential re-development or asset enhancement plans (for
assets that have not maximized their plot ratios) where CREIT
is unable to act on previously given the ongoing leases
obligations. As such, development or asset enhancement
initiatives are expected to increase CREITs industrial footprint
and at the same time improve the quality of its portfolio.
Based on our analysis, the current built-up GFA of its portfolio
is 7.39m sqft (based on 49 properties as of Dec12). Based on
our estimates, this is c35% below the maximum allowable
built-up GFA (per 2008 Master Plan), representing a potential
c2.6m sqft of additional GFA that can be extracted withintheir portfolio.
However, we believe that actual realisation of its full potential
will take time, and more capital and further feasibility studies
to ensure the efficient execution of plans.
11%
22%
11%
16%
10%7% 6%
4%
7%
3%
1%
1%
0% 1%
0%
5%
10%
15%
20%
25%
30%
35%
2013 2014 2015 2016 2017 2018 >2016
Multi-tenanted buildings
Single-tenanted buildings
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Company Focus
Cambridge Industrial Trust
Page 3
Properties up for renewal in coming years
Property Type No ofproperties CurrentBuilt-Up GFA(000 sqft)MaximumAllowableGFA**(000 sqft)
Un-utlizedGFA(000 sqft)% Expansion
Lease expiry 2013Industrial 4 434 780 346 80%
Light Industrial 4 551 582 31 6%
Warehousing 2 240 544 305 127%
Car Showroom & Workshop 1 51 118 67 132%
Self Storage & Warehousing - - - - na
Logistics - - - - na
Total in 2013 11 1,275 2,024 749 59%Lease expiry 2014Industrial - - - - -
Light Industrial 3 296 340 44 15%
Warehousing 3 437 520 83 19%
Car Showroom & Workshop - - - - na
Self Storage & Warehousing - - - - na
Logistics 2 1,229 1,530 301 24%
Total in 2014 8 1,962 2,390 428 22%Lease expiry 2015Industrial 1 225 297 73 32%
Light Industrial - - - - na
Warehousing 2 309 400 91 30%
Car Showroom & Workshop - - - - naSelf Storage & Warehousing - - - - na
Logistics - - - - na
Total in 2015 3 533 697 164 31%Lease expiry >2015Industrial 8 784 1,063 278 36%
Light Industrial 8 1,166 1,308 142 12%
Warehousing 5 462 958 495 107%
Car Showroom & Workshop - - - - na
Self Storage & Warehousing 1 322 325 2 1%
Logistics 5 880 1,176 296 34%
Total over 2015 27 3,615 4,829 1,214 34%PortfolioIndustrial 13 1,442 2,140 698 48%
Light Industrial 15 2,013 2,230 217 11%
Warehousing 12 1,447 2,422 974 67%
Car Showroom & Workshop 1 51 118 67 132%
Self Storage & Warehousing 1 322 325 2 1%
Logistics 7 2,110 2,706 597 28%
Portfolio Total 49 7,385 9,940 2,555 35%*As of Dec12. We have not included in the planned acquisition of 54 Serangoon North Ave 4, 30 Teban Gardens, 15 Jurong Port Road and
Tuas Medical Park in our analysis
**Based on site area x the maximum plot ratio per masterplan 2008
Source: Company, DBS Vickers
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Company Focus
Cambridge Industrial Trust
Page 4
Potential gains of up to S$151.3m to be reaped. Based onCREITs lease expiry profile, the trust will be renewing themaster leases of the 19 properties, of which based on our
estimates could yield close to c1.2m sqft of additional GFA, if
CREIT is able to fully maximize available plot ratios. This is
close to 46% of the estimated c2.6m sqft of un-utilized GFAs
for its portfolio.
Assuming that the trust is able to develop and maximize all
the plot ratios from leases expiring in the coming 2 years, weestimate that a total gross development value (GDV) of
S$246.1m. Assuming construction cost of S$150 psf, the
total construction of this additional space to cost S$176.6m
and CREIT to reap a gain of c69.5m as a result.
If we were to translate this to the 2.6m sqft of un-utilized
GFA in the portfolio, we estimate a total GDV of 534.5m and
a gain of up to S$151.3m, at a total construction cost of
S$383.3m ( @ S$150 psf).
.
Estimated value assuming the development of un-utilised GFA
Property Type Un-utlizedGFA AssumedRent(S$ psf/ permth )
Net propertyincome /annumAssumedCap Rate GrossDevelopmentValue(S$m)
ConstructionCost Surplus(S$m)(000 sqft) (%) (S$m)
Industrial 346.0 1.50 5.6 7.00% 80.1 51.9 28.2
Light Industrial 31.0 1.50 0.5 6.75% 7.4 4.7 2.8
Warehousing 305.0 1.25 4.1 7.00% 58.8 45.8 13.1
Car Showroom & Workshop 67.0 1.20 0.9 6.75% 12.9 10.1 2.8
Self Storage & Warehousing - 1.50 - 6.75% - - -
Logistics - 1.30 - 7.00% - - -
Total in 2013 749.0 1.38 11.1 159.2 112.4 46.8Industrial - 1.50 - 7.00% - - -
Light Industrial 44.0 1.50 0.7 6.75% 10.6 6.6 4.0
Warehousing 83.0 1.25 1.1 7.00% 16.0 12.5 3.6
Car Showroom & Workshop - 1.20 - 6.75% - - -
Self Storage & Warehousing - 1.50 - 6.75% - - -
Logistics 301.0 1.30 4.2 7.00% 60.4 45.2 15.2
Total in 2014 428.0 1.38 6.1 86.9 64.2 22.7Industrial 352.0 1.5 5.7 7.00% 81.5 52.8 28.7
Light Industrial 142.0 1.5 2.3 6.75% 34.1 21.3 12.8
Warehousing 586.0 1.3 7.9 7.00% 113.0 87.9 25.1
Car Showroom & Workshop - 1.2 - 6.75% - - -
Self Storage & Warehousing 2.0 1.5 0.0 6.75% 0.5 0.3 0.2Logistics 296.0 1.3 4.2 7.00% 59.4 44.4 15.0
Total > 2014 1,378.0 1.38 20.1 288.4 206.7 81.7Industrial 698.0 1.50 11.3 7.00% 161.5 104.7 56.8
Light Industrial 217.0 1.50 3.5 6.75% 52.1 32.6 19.5
Warehousing 974.0 1.25 13.1 7.00% 187.8 146.1 41.7
Car Showroom & Workshop 67.0 1.20 0.9 6.75% 12.9 10.1 2.8
Self Storage & Warehousing 2.0 1.50 0.0 6.75% 0.5 0.3 0.2
Logistics 597.0 1.30 8.4 7.00% 119.7 89.6 30.2
Portfolio Total 2,555.0 1.38 37.3 534.5 383.3 151.3Source: Company, DBS Vickers
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Company Focus
Cambridge Industrial Trust
Page 5
Execution of strategy will take time and feasibility. While weacknowledge the significant gains that may be reaped withinthe portfolio, it is also likely to take time for the trust to
execute on their development plans and more importantly,
we need to take into account the actual feasibility of
undertaking such development plans given market conditions
and site specifications.
Additional considerations for CREIT include (i) ensuring that
distributions to unit holders are not diluted during the
construction phases when the additional space are not
earning income, (ii) 10% development cap at any one time
which limits the total amount of activity and (iii) funding
required for the development.
Yield enhancement of up to +100bps expected. Assumingthe various development scenarios (25% up to 100% of totalun-utilized GFA), we estimate the total portfolio yield to
increase by between 50 bps to 100 bps.
In terms of actual impact on net property income, assuming
that 50-100% of total available un-utilized GFA is being
developed and converted into leasable area, we estimate that
CREIT could see a +11.1% to 44.7% increase in net property
income.
Development of untilized space could see up to +50bps to +100bps improvement in portfolio yield
Development scenarios Un-utlizedGFA ConstructionCost* ProjectedNet propertyincomeIncrease inNet Propertyincome vscurrentportfolio
Return ondevelopmentcostCurrentPortfolioYield(%)
ForecastedPortfolioYield (withdevelopment)(%)
Increasein yield(bps)
(000 sqft) (S$m) (S$m)Formula : A B B/A
Scenario 1: 100% of total avialable GFAProperties expiring in 2013 749 112.4 11.1 13.3% 9.9% 6.6% 6.9%
Properties expiring in 2014 428 64.2 6.1 7.3% 9.4% 6.6% 6.9%Properties expiring > 2014 1,378 206.7 20.1 24.1% 9.7% 6.6% 7.2%
Portfolio Total 2,555 383.3 37.3 +44.7% 9.7% 6.6% 7.6% +100 bpsScenario 2: 75% of total avialable GFA
Properties expiring in 2013 562 84.3 8.3 9.9% 9.9% 6.6% 6.9%
Properties expiring in 2014 321 48.2 4.5 5.4% 9.4% 6.6% 6.9%
Properties expiring > 2014 1,034 155 15.1 18.1% 9.7% 6.6% 7.2%
Portfolio Total 1,916 287.5 27.9 +33.4% 9.7% 6.6% 7.4% +80 bpsScenario 3: 50% of total available GFA
Properties expiring in 2013 374 56.2 5.5 6.6% 9.9% 6.6% 6.8%
Properties expiring in 2014 214 32.1 3 3.6% 9.4% 6.6% 6.8%
Properties expiring > 2014 689 103.4 10.1 12.1% 9.7% 6.6% 7.1%Portfolio Total 1,277 191.7 18.6 +22.3% 9.7% 6.6% 7.3% +70bpsScenario 4: 25% of total available GFA
Properties expiring in 2013 187 28.1 2.8 3.4% 9.9% 6.6% 6.8%
Properties expiring in 2014 107 16.1 1.5 1.8% 9.4% 6.6% 6.8%
Properties expiring > 2014 344 51.6 5 6.0% 9.7% 6.6% 7.0%
Portfolio Total 638 95.8 9.3 +11.1% 9.7% 6.6% 7.1% +50 bps* assumed to be 50% of total construction cost, which based on our estimates, will keep its current gearing level of c38% stable.
* construction cost assumed at S$150 psf
Source: Company, DBS Vickers
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Company Focus
Cambridge Industrial Trust
Page 6
Funding required. Given that a CREIT pays out 100% of itsdistributable income, there is minimal retention and the trust
has minimal cash on the balance sheet and any investments(acquisitions or developments) have to be funded by a
combination of new debt or equity.
As of latest report date, CREIT has a gearing of 38%, which is
at managements optimal level of c35-40%. If we were to
assume that CREIT maintains current gearing levels, weestimate the trust could require additional equity of up to
S$191.7m or up to 24% of its current equity base.
Development of untilized space could see up to +50bps to +100bps improvement in portfolio yield
Property Type Un-utlizedGFA GrossDevelopmentValueConstructionCost % on currentproperty value EquityFunding* % of currentequity base atDec12
(000 sqft) (S$m) (S$m) (50% of cost)
Scenario 1: 100% of total avialable GFAProperties expiring in 2013 749 159.2 112.4 9% 56.2 7%
Properties expiring in 2014 428 86.9 64.2 5% 32.1 4%
Properties expiring > 2014 1,378 288.4 206.7 16% 103.4 13%
Portfolio Total 2,555 534.5 383.3 29% 191.7 24%
Scenario 2: 75% of total avialable GFAProperties expiring in 2013 562 119.4 84.3 6% 42.2 5%
Properties expiring in 2014 321 65.2 48.2 4% 24.1 3%
Properties expiring > 2014 1,034 216.3 155 12% 77.5 10%
Portfolio Total 1,916 400.9 287.5 22% 143.7 18%Scenario 3: 50% of total available GFAProperties expiring in 2013 374 79.6 56.2 4% 28.1 4%
Properties expiring in 2014 214 43.5 32.1 2% 16.1 2%
Properties expiring > 2014 689 144.2 103.4 8% 51.7 7%
Portfolio Total 1,277 267.3 191.7 15% 95.8 12%Scenario 4: 25% of total available GFAProperties expiring in 2013 187 39.8 28.1 2% 14.1 2%
Properties expiring in 2014 107 21.7 16.1 1% 8 1%
Properties expiring > 2014 344 72.1 51.6 4% 25.8 3%
Portfolio Total 638 133.6 95.8 7% 47.9 6%
* assumed to be 50% of total construction cost, which based on our estimates, will keep its current gearing level of c38% stable.
Source: Company, DBS Vickers
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Company Focus
Cambridge Industrial Trust
Page 7
(ii) Sale of Lam Soon Industrial Building.
Potential sale in the works? Lam Soon Industrial Building islocated in Hillview estate, surrounded by private residential
developments. Lam Soon Industrial building sits on a prized
freehold land site zoned for residential use with a plot ratio of
1.9. CREIT owns 69.2% of the strata-units of this property
and as of 31st
Dec12, is valued at S$110m (100% basis) or
S$ 288 psf.
While CREIT, together with the other owners of the strata
units of the properties has previously attempted an enbloc
sale of this property, offers were received but the sale did not
happen as bids did not fulfill the terms set out in the
Collective Sale Agreement.
Looking ahead, we note that CREIT has continued to record
Lam Soon Building as an Investment Property held for
divestment which in our view, signals management intent to
re-look the potential sale of this property soon. In recent
news article, it is understood that the property has re-started
its collective sale efforts.
In our view, given that the site is located on land zoned for
residential, the potential sale of this property is expected to
reap significant value for the trust.
Looking at residential transactions done in the vicinity over
the past couple of months, we noted that latest residentialtransactions are in the range of S$ 1,010 psf S$ 1,602 psf,
the former for older property developments.
Selected residential properties in the vicinity and latestselling prices
LandLease Age Latest priceachievedThe Hiller 99Yrs Uncompleted S$1,602
The Lenai 999 Yrs from1885
Uncompleted S$1,432
Natura@Hillview
999 Yrs from1885
Uncompleted S$1,413
Hill Vista Freehold TOP 2010 S$1,086
Parc Palais Freehold TOP 1999 S$1,058HillviewRegency
LH 99 from2000
TO P2005 S$1,010
AverageSource: URA, DBS Vickers
Using the above transactions as a gauge, for computing the
implied land cost for Lam Soon Building and taking
assumptions on construction costs and developers margins,
at an assumed selling price of S$1,300 psf for a residential
unit, we estimate the residual land value at S$277.3m (or S$
625 psf). This is estimated to reap a gain of S$82.3m for
CREIT or up to 7 Scts / unit. In addition, our sensitivity analysis
estimates that every S$100 difference in our assumed
residential price will have a S$26m or 2 Scts impact on CREIT.
Lam Soon Industrial Building is located along Hillview Avenue
Source: Company, OneMap, DBS Vickers
Lam SoonIndustrial Building
The Hiller(out of Map)
Natura@Hillview
Parc Palais
Hillview Regency
The Lenai
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Cambridge Industrial Trust
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Property metrics of Lam Soon Industrial Building
Current DevelopmentAsset Class Light IndustrialSite Area (sqm ) 21,452.7 sqm
Gross Gloor Area (100%) 35,537.0 sqm
Built up plot ratio 1.66x
Tenure Freehold
CREIT's ownership 69.2%*
Valuation of Lam Soon Building (100%) S$110m (or S$288 psf)
Valuation of CREIT attributable stake S$76m
*97 strata unitsSource: Company, DBS Vickers
Estimated residual land price of Lam Soon Building (Conservative, Base and Optismistic scenarios)
Propoposed DevelopmentSite Area 21,452.7 sqmPlot Ratio(as per Master Plan 2008) 1.92xMaximum allowable GFA (sqm) 41,189 sqmMaximum allowable GFA (sqft) 443,357 sq ft
Remarks Conservative Base OptimisticSalesResidential Selling Price per sq ft 1,000.0 1,300.0 1,600.0
Total Sales proceeds 443.4 576.4 709.4Total Net Sales Proceeds (S$m) 436.7 567.7 698.7Assumed Project CostsConstruction Cost Assumed S$350 psf (155.2) (155.2) (155.2)
DC Payable (Change of use) Per URA / SLA (33.7) (33.7) (33.7)
Others (Fees, GST) (16.4) (16.4) (16.4)
Total Project Cost assumed (S$m) (205.3) (205.3) (205.3)Developer's Profit (of gross sales) Assumed 15% 65.5 85.2 104.8Residual Land Price 165.9 277.3 388.6Land Price $ psf/pr 374.2 625.4 876.6
Valuation of Property As of 31st
Dec12 158.3 158.3 158.3
Attributable valuation of property(CREIT)
110.0 110.0 110.0
Gain to be realised 7.6 119.0 230.4
Gain attributable to CREIT 69.2% stake 5.3 82.3 159.4
Total shares 1,212 1,212 1,212
Gain / share 0.01 0.07 0.13Source: Company, DBS Vickers
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Cambridge Industrial Trust
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Valuations
We have presented various potential valuation methodologiesto take into account the scenarios and potential value
unlocking initiatives that might be executed upon in the
coming quarters. These are: (i) Methodology 1: Base DCF on
existing portfolio, which is our base valuation on existing cash
flows of the property, taking into account all previously
announced planned acquisitions, divestments; (ii)
Methodology 2: Expanded portfolio which accounts for the
potential redevelopment of its existing portfolio, bringing its
total built-up area to its full potential; and (iii) RNAV of the
existing portfolio, accounting for both the sale of Lam Soon
Building and development of the un-utilized GFA in its
portfolio.
Our target prices for the various scenarios are as such:
Various valuation methodology
Basis Price Target(S$)Methodology 1 DCF existing Portfolio 0.78
Methodology 2 DCF with development of100% of space
0.88
Methodology 3 RNAV 0.98
Average 0.88Price target Based on 2 and 3 0.93
Source: DBS Vickers
We like to highlight that there are execution risks and
feasibility studies needed to be undertaken to fully realise the
potential of its current portfolio. Our revised TP of S$0.93 for
CREIT is pegged to the average of methodologies 2 and 3,
which incorporates the growth initiatives that might be
executed upon.
Methodology 1: DCF our base case (Current portfolio).Like all the other S-REITs, we use DCF as our main
methodology to value CREIT. Our model is based on the
projected cash flows for its current portfolio, and is updated to
latest announced acquisitions and divestments and not taking
into account any potential development projects. We have
used a WACC of 6.7% to discount our cashflows, based on a
risk-free assumption of 1.8%. Our fair value of S$0.78
.
DCF of Cambridge REIT ( Current Portfolio )
Yr1 Yr2 Yr3 Yr4 Yr5 Yr6 Yr7 Yr8 Yr9 Yr10 TerminalFY Dec (S$m) FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22Total FCF to the Firm 26.7 80.2 81.0 82.3 83.7 85.0 86.4 87.7 89.1 90.4 1,549.7
Discounted FCF 25.0 70.4 66.7 63.5 60.6 57.6 54.9 52.2 49.7 47.3 810.5Total shares 1,208 1,208 1,208 1,208 1,208 1,208 1,208 1,208 1,208 1,208 1,208
PV of Free Cash Flows 548.0
PV of Terminal Value 810.5
Net Cash/(debt) (403.9)
Total Equity Value 903.7
Total Shares 1,223
Value per share 0.78Assumptions:Terminal Growth 1.0%
Cost of Equity 8.6%
Cost of Debt 3.5%
WACC 6.7%
Source: DBS Vickers
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Cambridge Industrial Trust
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Methodology 2: DCF expanded portfolio.Assuming that CREIT were to undertake a development plan
to maximize the allowable GFA in its portfolio, we estimate
that the trust could see net property income and distributable
income growth of 44%, distribution income per unit growth
of c20%.
In our assumption, we have also included additional debt and
equity raisings (50%-50% ratio) in order to maintain current
gearing of 38%. As such, we have derived a fair value of
S$0.88 for the trust.
DCF of Cambride REIT assuming development
Yr1 Yr2 Yr3 Yr4 Yr5 Yr6 Yr7 Yr8 Yr9 Yr10 TerminalFY Dec (S$m) FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22Income from current portfolioTotal FCF to the Firm 26.7 80.2 81.0 82.3 83.7 85.0 86.4 87.7 89.1 90.4 1,549.7
Income from development:EBIT 0.0 11.1 17.4 20.1 38.2 39.0 39.8 40.5 41.4 42.2
Capex assumed (112.4) (64.2) (24.6) (182.0) 0.0 0.0 0.0 0.0 0.0 0.0
Total FCF to the firm(Development)
(112.4) (53.1) (7.2) (161.8) 38.2 39.0 39.8 40.5 41.4 42.2 763.0
Total FCF to the firm(Total) (85.7) 27.1 73.8 (79.5) 121.9 124.0 126.2 128.2 130.5 132.6 2,312.7
Shares:Total shares (current) 1,216
Total Shares( to be issued)
80 46 18 130 - - - - - - -
Total Share(Expanded share base) 1,296 1,342 1,360 1,490 1,490 1,490 1,490 1,490 1,490 1,490 1,490
PV of Free Cash Flows 575
PV of Terminal Value 1,229
Net Cash/(debt) (596)
Total Equity Value 1209
Total Shares 1,380
Value per share 0.88Assumptions:Terminal Growth 1.0%
Cost of Equity 8.6%
Cost of Debt 3.5%WACC 6.7%
Source: DBS Vickers
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Page 11
Methodology 3: RNAV.With continued asset recycling and the potential sale of Lam
Soon Building, we have also used RNAV to value CREITs
portfolio to take into account the various developments (i)
potential sale of Lam Soon Building; and (ii) the value of the
development projects. Our full valuation of CREIT is S$0.98.
RNAV of Cambridge REIT
Industrial Sectors No ofproperties GFA
(msqft)
Gross Revenues
(S$m)
NetPropertyIncome(S$m)
Cap rates
(%)
RNAV
(S$m)Logistics 7 2.1 17.3 16.5 6.75% 244.1
Light industrial 15 2.0 23.7 22.5 6.75% 333.7
Industrial 12 1.2 21.5 20.4 7.00% 291.1
Warehousing 12 1.4 12.6 11.9 7.00% 170.4
Car showroom & Workshop 2 0.4 5.9 5.6 7.00% 80.5Portfolio as of Dec'12 48 7.2 Total 1,120
Recent Acquisitions + MOUs signed 5 1.1 16.4 15.5 7% 230.2Sale of Lam Soon Building 1Attributable fair value 193.0Less debt (457.3)RNAV (existing portfolio) 1,085.9Existing share base 1,223
RNAV/Share 0.93Development Scenario Un-utilized
(m sqft )
AssumedRent psf(S$)
Gross Revenues
(S$m)
NetPropertyIncome(S$m)
Cap rates
(%)
RNAV
(S$m)Industrial 0.7 1.50 13.3 11.9 6.8% 176.7
Light Industrial 0.2 1.50 4.1 3.7 6.8% 55.0
Warehousing 1.0 1.25 15.4 13.9 7.0% 198.3
Car Showroom & Workshop 0.1 1.20 1.0 0.9 7.0% 13.1
Self Storage & Warehousing 0.1 1.50 0.0 0.0 7.0% 0.5
Logistics 0.6 1.30 9.8 8.8 7.0% 126.3
Value of un-utilized GFA 570.0Less additional debt raised (50%) (191.6)
RNAV (with development potential) 1,464.3Current Share base 1,223
Add: Issuance of new shares 273.7
Expanded Share base 1,496.7RNAV/Share 0.98
Source: DBS Vickers
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Appendix
Selected selling prices of residential developments in the surrounding area (New & Old property developments)
1000
1100
1200
1300
1400
1500
1600
1700
May-10 Nov-10 Jun-11 Dec-11 Jul-12 Jan-13
S$ psf
The Lenai (New Sale)
Property Development: The LenaiLand Lease: LH 999 years from 1885 (872 years left)Age of development: UncompletedAverage price of residential units sold: S$ 1,350 psfLatest transacted price achieved : S$1,432 psf (Dec12)
0
200
400
600
800
1000
1200
Jun-97 Mar-00 Dec-02 Sep-05 Jun-08 Feb-11
S$ psf
Parc Pa lais (New Sale)
Parc Pa lais (Resale)
Property Development: Parc PalaisLand Lease: FreeholdAge of development: TOP 1999 (13 years old)Average price of residential units sold: S$ 650 psfLatest transacted price achieved : S$1,058 psf (Dec12)
700
800
900
1000
1100
1200
1300
1400
Oct-06 Feb-08 Jul-09 Nov-10 Apr-12 Aug-13
S$ psf
HillVista (new sa le)
HillVista (Sub Sa le and Resale)
Property Development: Hill VistaLand Lease: FreeholdAge of development: TOP 2010 ( 3 years)Average price of residential units sold: S$ 1,086 psfLatest transacted price achieved : S$1,300 psf (Dec12)
800
1000
1200
1400
1600
1800
2000
Nov-11 Dec-11 Feb-12 Apr-12 May-12 Jul-12 Aug-12 Oct-12 Dec-12 Jan-13
S$ psf
The Hiller (New Sale)
Property Development: The HillerLand Lease: LH 99 years from 2011 (98 years left)Age of development: UncompletedAverage price of residential units sold: S$ 1,340 psfLatest transacted price achieved : S$1,602 psf (Dec12)
Source: URA, DBS Vickers
800
900
1000
1100
1200
1300
1400
1500
1600
Feb-12 Apr -12 May- 12 J ul-12 Aug-12 Oct- 12 Dec- 12 J an- 13
S$ psf
Natura@Hillview Sales
Property Development: Natura@HillviewLand Lease: LH 999 years from 1885 (872 years left)Age of development: UncompletedAverage price of residential units sold: S$ 1,300 psfLatest transacted price achieved : S$1,413 psf (Dec12)
Property Development: Hillview RegencyLand Lease: LH 99 Years from 2000 (87 Years)Age of development: TOP 2005 ( 5 years)Average price of residential units sold: S$ 600 psfLatest transacted price achieved : S$1,010 psf (Nov12)
0
200
400
600
800
1000
1200
May-99 Oct-00 Feb-02 Jun-03 Nov-04 Mar-06 Aug-07 Dec-08 May-10 Sep-11 Jan-13
S$ psf
Hillview Regency (New Sales)
Hillview Regency (Resale)
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Page 13
Income Statement (S$ m)FY Dec 2010A 2011A 2012A 2013F 2014FGross revenue 74 80 89 95 103
Property expenses (9) (11) (13) (13) (14)Net Property Income 65 69 76 82 89Other Operating (6) (7) (11) (7) (7)
Other Non Opg (Exp)/Inc 0 0 0 0 0
Net Interest (Exp)/Inc (25) (26) (20) (20) (21)
Exceptional Gain/(Loss) 4 (1) 2 0 0Net Income 38 35 48 56 61Tax 0 0 0 0 0
Minority Interest 0 0 0 0 (1)
Preference Dividend 0 0 0 0 0Net Income After Tax 38 35 48 56 60Total Return 86 85 89 56 60
Non-tax deductible Items (41) (35) (32) 5 4
Net Inc available for Dist. 45 50 58 60 64
Growth & Ratio
Revenue Gth (%) (0.3) 8.3 10.7 7.2 7.7N Property Inc Gth (%) (0.1) 6.2 10.3 8.2 7.7
Net Inc Gth (%) 42.3 (7.8) 37.9 16.6 7.5
Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0 100.0
Net Prop Inc Margins (%) 87.7 86.0 85.7 86.5 86.5
Net Income Margins (%) 50.6 43.1 53.7 58.5 58.4
Dist to revenue (%) 60.3 62.7 64.7 63.2 62.3
Managers & Trusteesfees to sales %)
8.4 8.9 12.6 7.2 6.8
ROAE (%) 6.5 5.0 6.3 7.1 7.7
ROA (%) 3.9 3.3 4.0 4.3 4.7
ROCE (%) 6.3 6.0 5.5 5.9 6.4
Int. Cover (x) 2.3 2.4 3.3 3.8 3.8Source: Company, DBS Vickers
Net Property Income and Margins
81.4%
83.4%
85.4%
87.4%
89.4%
91.4%
93.4%
95.4%
0
10
20
30
40
50
60
70
80
90
100
2010A 2011A 2012A 2013F 2014F
S$ m
Net Property Income Net Property Income Margin %
Quarterly / Interim Income Statement (S$ m)
FY Dec 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012Gross revenue 21 21 22 23 24
Property expenses (3) (3) (3) (3) (3)
Net Property Income 18 18 18 19 21Other Operating (2) (2) (2) (2) (6)
Other Non Opg (Exp)/Inc 0 0 0 3 0
Net Interest (Exp)/Inc (4) (4) (5) (5) (6)
Exceptional Gain/(Loss) 2 0 (5) 0 0Net Income 14 11 6 15 10Tax 0 0 0 0 0
Minority Interest 0 0 0 0 0Net Income after Tax 14 11 6 15 10Total Return 17 11 6 15 56
Non-tax deductible Items (3) 2 8 (1) (42)
Net Inc available for Dist. 13 14 14 15 15
Growth & RatioRevenue Gth (%) 0 1 3 5 7
N Property Inc Gth (%) 3 (1) 2 4 8
Net Inc Gth (%) 20 (19) (45) 141 (36)
Net Prop Inc Margin (%) 87.1 85.9 85.3 85.1 86.4
Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0 100.0
Net Property Income and Margins
83%
84%
84%
85%
85%
86%
86%
87%
87%
88%
88%
89%
0
5
10
15
20
25
3Q2010
4Q2010
1Q2011
2Q2011
3Q2011
4Q2011
1Q2012
2Q2012
3Q2012
4Q2012
Net Property Income Net Property Income Margin %
Contribution from recentlyacquired properties coupledwith completion of itsvarious AEIs
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Page 14
Balance Sheet (S$ m)FY Dec 2010A 2011A 2012A 2013F 2014FInvestment Properties 928 1,009 1,214 1,250 1,252
Other LT Assets 0 0 0 0 0
Cash & ST Invts 71 79 90 36 36Inventory 0 18 0 0 0Debtors 1 1 2 1 2Other Current Assets 0 0 0 0 0Total Assets 1,001 1,108 1,305 1,288 1,290ST Debt 0 0 71 71 71
Other Current Liabilities 19 9 20 7 7
LT Debt 339 357 423 423 428
Other LT Liabilities 0 4 5 5 5
Unit holders funds 642 738 787 782 778
Minority Interests 0 0 0 0 1Total Funds & Liabilities 1,001 1,107 1,305 1,288 1,290Non-Cash Wkg. Capital (18) 11 (18) (5) (5)
Net Cash/(Debt) (268) (278) (404) (457) (463)
RatioCurrent Ratio (x) 3.8 10.6 1.0 0.5 0.5
Quick Ratio (x) 3.8 8.6 1.0 0.5 0.5
Aggregate Leverage (%) 36.5 35.3 40.7 39.5 39.8
Z-Score (X) NA 1.5 1.0 1.1 1.1Source: Company, DBS Vickers
Aggregate Leverage
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
2010A 2011A 2012A 2013F 2014F
Cash Flow Statement (S$ m)FY Dec 2010A 2011A 2012A 2013F 2014FPre-Tax Income 86 35 48 56 61
Dep. & Amort. 0 0 0 0 0Tax Paid 0 0 0 0 0
Associates &JV Inc/(Loss) 0 0 0 0 0
Chg in Wkg.Cap. 1 (4) 1 (13) 0
Other Operating CF (28) 27 17 0 0Net Operating CF 59 58 66 43 61Net Invt in Properties (1) (66) (133) (36) (2)
Other Invts (net) 0 21 0 0 0
Invts in Assoc. & JV 0 0 0 0 0
Div from Assoc. & JVs 0 0 0 0 0
Other Investing CF 1 0 0 0 0Net Investing CF 0 (45) (133) (36) (2)Distribution Paid (45) (43) (41) (60) (64)
Chg in Gross Debt (67) 17 118 0 5
New units issued 91 54 0 0 0Other Financing CF (7) (33) 0 0 0Net Financing CF (28) (5) 78 (60) (59)Currency Adjustments 0 0 0 0 0
Chg in Cash 31 8 11 (53) 0
Operating CFPS (S cts) 6.5 5.2 5.4 4.6 5.0
Free CFPS (S cts) 6.6 (0.7) (5.6) 0.6 4.9
Source: Company, DBS Vickers
Distribution Paid / Net Operating CF
0.2
0.4
0.6
0.8
1.0
1.2
1.4
2010A 2011A 2012A 2013F 2014F
Gearing at 39% toremain stable
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Page 15
Spitzer Chart
S.No. Da te ClosingPr iceTargetPr ice Rat ing
1: 15 Mar 12 0.54 0.58 Buy
2: 19 Apr 12 0.56 0.58 Buy
3: 26 Apr 12 0.54 0.58 Buy
4: 01 Aug 12 0.60 0.65 Buy
5: 02 Nov 12 0.67 0.71 Buy
6: 06 Dec 12 0.65 0.72 Buy
7: 21 Jan 13 0.71 0.75 Buy
Note : Share price and Target price are adjusted for corporate actions.
1
2
3
4
5:
6
7
0.48
0.53
0.58
0.63
0.68
0.73
0.78
Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13
S$
Source: DBS Vickers
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Page 16
DBSV recommendations are based an Absolute Total Return* Rat ing system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)BUY (>15% total return over the next 12 months for small caps, >10% for large caps)HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)FULLY VALUED (negative total return i.e. > -10% over the next 12 months)SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)Share price appreciation + dividends
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