Cambridge-DBSV

Attractive 9% yield

• S$50.4m cash call to fund property purchases

• Improved financial metrics, slight accretion to DPU

• 300 bps spread above Sreit sector average yield of 6.0% is attractive, Upgrade to BUY, TP revised to S$0.58

S$50.4m cash call to fund growth opportunities. Cambridge REIT (“CIT”) announced an equity fund raising (“EFR”) of S$50.4m via (i) private placement of 56.5m units (fully subscribed) and a preferential offering of up to 38.5m units, at S$0.531 per unit (fixed at 4.9% VWAP to price on 19 Oct).

Target yields of properties to be >8.0%. Proceeds will be used to fund the purchase of 4 properties of which 1 is a development project – CIT’s first undertaking. Post EFR, CIT will have stronger financial metrics (gearing of 36.4% after scheduled loan repayment in Nov’10), and reduced concentration of lease expiry in FY13-14 to 56.9%.

Enhancement plans unveiled, to boost DPU. CIT also unveiled AEI plans for 2 of its properties at a cost of S$13.1m, where incremental NPI yield is expected to be in excess of 15%. With the share placement and AEI works, we raised our forward FY11 DPU estimates to 2%.

3Q10 DPU of 1.18 Scts in line. Lower 3Q10 revenue and net property income (“NPI”) of S$18.2m (-2.6% yoy) and S$15.9m (-2.6% yoy) respectively were due to ongoing divestment program. Performance in 4Q10 should be lifted by contribution from its new acquisitions completed in recent weeks.

TP revised to S$0.58, Upgrade to BUY. We see relative value in Cambridge REIT given its high FY11-12 yield of 8.9-9.2%, which is a 300 bps above the average Sreit peers. Income visibility and stability is strong, given that most of its properties are sale-and-leaseback properties. Upgrade to BUY and raised TP to S$0.58.