Major holdings in portfolio report 2Q 10 earnings

Wells Fargo

• 2Q 10 EPS of US$0.55 (consensus: US$0.48), net income of US$3.06 billion
• Revenue of US$21.4 billion; PTPP of US$8.6 billion
• Net interest margin rose to 4.38%, up from 4.27% in 1Q 10
• Supplied US$150 billion in credit, up from US$128 billion in 1Q 10
• Net charge-offs declined
• "We believe credit quality has indeed turned the corner"

In yet another consensus-beating quarter, Wells Fargo managed net income of US$3.06 billion, even as its peers saw profit being impacted by shaking trading revenue. Net interest margin is the highest amongst the large banks, and even managed to post an increase from 1Q 10. Pre-tax pre-provisions profit (PTPP) weaker than usual (WFC managed about US$40 billion in 2009), due to merger integration costs and severance costs related to Wells Fargo Financial. Little guidance has been offered on the potential impact of regulatory reform; until then, company remains highly profitable with very sticky deposits (US$761.8 billion, up from US$759.2 billion in 1Q 10).

Cambridge Industrial Trust (CIT)

• 99.97% portfolio occupancy
• 37 Tampines Street 92, 27 Pandan Crescent and additional 17 strata units at 48 Toh Guan Road East (Enterprise Hub) disposed, generating a gain on disposal of S$1.1 million for 2Q 10
• Portfolio valued at $831,150,000 as of 30 Jun 2010
• NPI down from $16.3 million in 1Q 10 to $16.1 million in 2Q 10, due to divestments
• Distributable income down from $11.1 million to $10.8 million
• DPU of 1.238 cents, down from 1.274 cents in 1Q 10
• NTA at 59.9 cents, up from 59.3 cents in 1Q 10
• Gearing down from 42.6% to 42.3% in 2Q 10, target below 40% by end FY10

Yet another stable quarter with no surprises from CIT; dividend yield is about 9.9%, should be expected to head lower as more assets are sold to lower gearing. Yield is still substantial, and more than average S-Reits (about 6-7%), while rents have been locked in at low levels and have the potential to be raised in future. We are pleased that the management is taking a prudent approach to lower debt without destroying shareholder value by a dilutive rights issue or placement exercise. Portfolio assets have been revalued upwards; strong rebound in manufacturing sector should have positive implications for industrial rents going forward.