Assets devalued by 9%. In 2Q09, the manager commissioned a full valuation of CREIT’s assets, with a 9% fall in asset value to S$880.3m. This was mainly due to higher cap rates and lower rents used by the valuers. After the valuation, asset leverage rose to 43.8% from 39.9%, while NAV/unit decreased to S$0.62 from S$0.73cts. Management anticipates flat valuation by the end of the year.
Private placement of S$28m diluted DPU by 8%. On 27 Jul, management announced a private placement of 71.1m units to raise gross proceeds of S$28m. This represented 9% of the units in issue as at 31 Dec 08. Assuming no other changes, DPU would be diluted by 8%. About 23% of the privately placed units will go to its sponsors NAB (19%) and Oxley (4%). Units issued to NAB and Oxley will be priced at S$ 0.399/unit, based on the adjusted volume-weighted average price (VWAP) of units for the full market day on 24 Jul 09. Units issued to other investors will be priced at S$0.392, a 5% discount to VWAP.
Changes to our estimates. We reduce our rental decline assumptions for CREIT in FY09 to -2% (from -5%), in view of the stable performance in 1H09. Additionally, we adjust the number of units to factor in the private placement, and add back the amortised loan transaction cost to distributable income. The net result for our FY09-11 DPU forecasts is an upgrade of 12-18%.
Maintain Outperform; higher target price of S$0.52 (from S$0.48). Our target price rises in tandem with our increased DPU forecasts to S$0.52 (from S$0.48), still based on DDM-valuation (discount rate 9.4%). We maintain our Outperform rating given its shareprice upside potential and forward yields of 12%.
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