SINGAPORE (April 27): DBS is upgrading Cambridge Industrial Trust to “buy” and raising its target price to 60 cents given the acquisition of the trust manager and sponsor E-Shang Redwood has removed some of the overhanging risks.
With four assets identified for potential divestments and the manager still keen to look for acquisition opportunities, particularly in Australia, further potential re-rating can be expected once a detailed blueprint from ESR is communicated to the investors given the sponsor’s large asset portfolio in North Asia, says analyst Derek Tan in a Wednesday flash note.
In Jan, ESR, the Warburg Pincus-backed pan-Asian logistics real estate developer, owner and operator, reached a deal to buy 80% indirect stake in the manager of CREIT. On Feb 7, ESR also acquired 10.7% stake in CREIT and continued to add to its position since, to reach the current 12%, effectively becoming its second largest unitholder after Tong Jinquan, chairman of China-based Summit Property Development.
A month later, CREIT also announced the appointment of ex-StanChart banker Adrian Chui as CEO of Executive Director. Shane Hagan, who served as the Acting CEO since Philip Levinson’s resignation last November, will now resume his original role of Chief Operating Officer and Chief Financial Officer.
To recap, trust manager reported 1Q17 gross revenue came in at $27.7 million, down 2.2% y-o-y, mainly attributed to the loss of efficiency from several lease conversions from master to multi-tenanted as well as divestment of properties. Single vs multi-tenanted properties by rental income dropped to 40.5% vs 59.5% compared to 48.3% vs 51.7% a year ago.
As the number of multi-tenanted buildings in the portfolio increased from 20 to 23 over FY16, this has also resulted in an increase in property tax, land rental and other property expenses by 17.1% to $8.0 million.
NPI was down by 8.4% to $19.7 million. DPU came in at 1 cent, down 9.7% y-o-y, and represents 25.1% of DBS’s full year FY17 forecast, in line.
“In addition, we maintain a close watch of a potential giant industrial REIT that could emerge from a series of M&As on the back of the dynamic activities of CREIT’s new sponsor, ESR. a consolidation in industrial REITs could re-rate share prices,” says Tan.
Units of CREIT are trading at 58 cents.
