Find out how the Ang Mo Kio acquisition will impact Cambridge Industrial Trust in FY14

Its leverage ratio might rise to 34.8%.

Cambridge Industrial Trust is bucking the trend of a tight acquisition market after it revealed this week that it is mulling the acquisition of 12 Ang Mo Kio street 65 for a purchase consideration of S$39.8m.

Analysts caution that while the ,move is yield-accretive in the long run, the acquisition will have a low initial yield and raise the CREIT’s gearing to over 33%.

“With this acquisition expected to be fully funded via cash on hand and debt, we believe there will be no capital-raising. Consequently, we expect this acquisition to be yield-accretive, adding 2.1% to FY15 DPU and 2.2% to FY16 DPU, with a leverage ratio of 34.8% upon completion. Given this, together with the strong tenants currently on the property, we view the proposed acquisition positively, although given the value of this asset and the fact that the acquisition will only be completed in 3Q14, the impact on FY14 earnings should be minimal,” noted CIMB.

DBS echoed this sentiment, noting that given the average monthly rent of S$1.80 psf pm is c.20% below market passing of S$2.20 psf pm, returns could exceed 7% on a longer term basis.

“Assuming 100% debt funding, this acquisition will be marginally DPU accretive for FY14, and increase DPU by c3% in FY15. Gearing estimated to rise to c. 33%. The low initial yield is a reflection of current tight acquisition market where the CREIT looked to delivering through value accretive deals,” stated DBS.