TEXT-S&P summary: Cambridge Industrial Trust

(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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