(The following statement was released by the rating agency)
Nov 30 -
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Summary analysis -- Cambridge Industrial Trust -------------------- 30-Nov-2012
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CREDIT RATING: BBB-/Stable/-- Country: Singapore
Primary SIC: Real estate
investment
trusts
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Credit Rating History:
Local currency Foreign currency
13-Jul-2006 BBB-/-- BBB-/--
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Rationale
The rating on Cambridge Industrial Trust (CIT) reflects the Singapore-based
REIT's portfolio of good quality and well-located industrial property assets
and its stable cash flows. CIT's limited asset and tenant diversity tempers
these strengths. We assess the REIT's business risk profile as "satisfactory"
and its financial risk profile as "intermediate."
CIT benefits from an occupancy rate of 98.9%. The company's gross revenues of
Singapore dollar (S$) 65.0 million for the nine months ended Sept. 30, 2012,
were in line with our expectation. We anticipate that the REIT's earnings and
cash flows will remain steady over the next one to two years. This is because
CIT is likely to have limited capital expenditure needs given that its tenants
are responsible for the regular maintenance of the properties.
CIT's assets values are comparable with peers', despite the smaller average
size of assets in its 48-property portfolio. The REIT's average security
deposit per tenant of 12.5 months' rent is higher than the industry average of
three to four months' rent. In our view, the high tenancy deposit mitigates
any immediate negative cash flow impact if leases are terminated because it
provides CIT with sufficient time to find other tenants. We expect CIT's
portfolio value to rise to about S$1.2 billion by Dec. 31, 2012, from S$1.0
billion a year earlier. The management's active management of assets
(replacing smaller and underperforming assets with new properties) will drive
asset and earnings growth.
CIT has limited geographic diversity because all its assets are located in
Singapore. Tenant concentration is also high: The top 10 tenants contributed
about 49% of gross rent in the quarter ended September 2012. Single tenant
properties constitute 83% of the company's portfolio.
CIT raised a S$100 million bridge loan in early November this year to finance
the purchases of certain identified properties. The loan will increase the
company's debt-to-capital ratio to 45%, which is higher than peers', in the
next six months, from about 37% currently. The REIT is acquiring the assets to
replace two properties that the Singapore Land Authority (SLA) purchased for
S$101.6 million under its compulsory purchase mechanism. CIT expects to repay
the loan on maturity in March 2013 with the compensation from the SLA. We
expect the company's debt-to-capital ratio to decline to 36% after it repays
the loan. We do not see any risk in the receipt of compensation from the SLA.
In addition, we believe that the completion of CIT's two pre-committed
build-to-suit development projects will partially make up for the loss in
revenue from the government's acquisition of two of CIT's properties in 2012.
In our base-case scenario, we expect CIT's revenue to increase 12% year over
year to S$90 million in 2012.
Liquidity
We view CIT's liquidity as "adequate," as defined in our criteria. We estimate
that the REIT's liquidity sources will exceed its liquidity uses by more than
20% in 2012. Our liquidity assessment is based on the following major
assumptions:
-- CIT will have unrestricted cash and short-term investments of S$25
million-$30 million by the end of 2012.
-- Funds from operations will be S$30 million-S$35 million in 2012.
-- Current committed and undrawn facilities are about S$73 million.
-- Budgeted maintenance and development capital expenditure is S$55
million-S$60 million in 2012.
-- Distribution to unitholders will be about 90% of distributable income,
or S$45 million-S$50 million.
-- We expect net liquidity sources to remain positive even if EBITDA
declines 15%.
We believe that CIT has limited headroom to increase debt in 2012. The REIT is
likely to temporarily breach its target gearing (ratio of total debt to
capital) of 40% with the recent asset acquisition. However, we believe this
spike will be reversed with the SLA proceeds and we estimate CIT's gearing
will revert to about 36% by March 2013.
CIT's funding needs are minimal because of low capital expenditure
requirements due to the completion of its development and asset enhancement
projects. In the next 12 months, we believe that the REIT is not at risk of
breaching the financial covenants stipulated in its bank loans. Covenants
include a loan-to-total assets ratio of less than 60% and a ratio of net
property income to interest of more than 1.5x.
Outlook
The stable rating factors in our expectation that CIT will maintain its
business risk profile and generate adequate cash flows.
We may raise the rating if the REIT improves the overall quality of its asset
portfolio, reduces tenant concentration risk, and adopts a more conservative
financial policy.
We may lower the rating if CIT engages in overly aggressive debt-funded
acquisitions, which weaken its capital structure. We could also downgrade CIT
if the REIT's asset quality deteriorates or its net operating income comes
under pressure, weakening its credit metrics. A downgrade trigger could be a
debt-to-capital ratio of more than 40% and a debt-to-EBITDA ratio of more than
7.5x on a sustained basis.
Related Criteria And Research
-- Key Credit Factors: Global Criteria for Rating Real Estate Companies,
June 21, 2011
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
Source: http://news.yahoo.com/text-p-summary-cambridge-industrial-trust-091445945--sector.html
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