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Cambridge Industrial Trust: 30 Teban Gardens.

Cambridge Industrial Trust is looking at buying 30 Teban Gardens for S$41m.

"Cambridge Industrial said 30 Teban Gardens Crescent is a high quality asset, with prominent exposure to the Ayer Rajah Expressway. The acquisition will further reduce the reliance of the trust’s income stream on any single asset or tenant."

Eurosports Auto at 30 Teban Gardens distributes Lamborghinis.

What I am immediately interested in is how are they going to fund the purchase and how will it impact my income received from the REIT.

The REIT has a gearing level of some 35.9% as of March 2012. Not excessive but it is not low either.

The manager has said that the acquisition will be funded through a mixture of equity fund raising and debt. In what proportion and in what form is the equity fund raising going to take? I guess we will have to wait for more details.

If the acquisition goes through, the manager expects the net property income (NPI) of the trust to improve some 4.6%. If the acquisition is fully funded by debt, DPU could be impacted similarly but with equity fund raising involved, depending on how many new units are issued, DPU would probably not increase by as big a percentage. If a rights issue is involved, we would also have to see the asking price before we can calculate the distribution yield.

Cambridge Industrial Trust has improved on its DPU for four consecutive quarters and it seems like a relatively good investment for income. However, I am unable to forget Chris Calvert's spotted track record before this. So, this remains a smallish investment in my portfolio.

I have a nagging feeling that this acquisition is not a good idea. Although the acquisition would only go through on a condition that the vendor (seller) obtains a further 22 years lease from JTC, the initial lease term was for 10 years only (from 1 July 2007). This means that 5 years have lapsed. Even with a further 22 years of lease, it would mean a total of only 27 years is left to the lease and would expire in 2039.

Is the valuation overly optimistic and is the REIT overpaying?

Slides presentation 26 - 28 June 2012: Here.

See announcement on acquisition: Here.