Cambridge – BT

CIT aims to divest part of its portfolio

Deal to buy property at Tai Seng Avenue is now off, says CEO

CAMBRIDGE Industrial Trust (CIT) could divest 5-10 per cent of its property assets over the next 12-18 months as part of a long-term plan to ‘recycle’ its portfolio, chief executive Chris Calvert told BT.

‘What I want to achieve for the Reit (real estate investment trust) is a portfolio that we recycle a part of regularly so that we can maintain a modern investment-grade portfolio,’ said Mr Calvert, who took the helm of CIT’s manager Cambridge Industrial Trust Management from Wilson Ang Poh Seong in December 2008.

CIT owns 43 properties that were worth a total of $968 million at end-March 2009. Five or six of these have been identified as ‘non-core’ and could be sold, Mr Calvert said.

Proceeds could be used to pay off debt or acquire new properties.

CIT has to take care to keep its gearing down. It recently refinanced all existing debt through a $390.1 million syndicated term loan, leaving it with no refinancing obligations until February 2012.

But under the terms of this loan, if the trust’s loan-to-value (LTV) ratio exceeds 50 per cent, the lenders can draw on the Reit’s rental income to pay down debt and reduce gearing down to a more manageable level.

And if the LTV ratio exceeds 55 per cent, CIT will have breached the loan conditions, which means the lenders could take other steps to reclaim their money – including seizing CIT’s assets.

CIT’s gearing is now around 40 per cent. The Monetary Authority of Singapore has set a 60 per cent threshold for a Reit’s gearing.

Despite the fact that debt is locked in for the next three years, prudent capital management is a priority for CIT’s manager. The trust said in its first-quarter 2009 results announcement that it is looking at ways to strengthen its balance sheet.

But Mr Calvert emphasised that it is not a distressed seller. For its gearing to hit 50 per cent, the value of its property portfolio would have to fall more than 20 per cent, and this is unlikely, he said.

However, because of the soft outlook for the rest of this year, CIT’s property portfolio is likely to be revalued downwards.

Mr Calvert also said the trust will not go through with an earlier plan to buy 29 Tai Seng Avenue for $55.2 million. Late last year, the option agreement was extended to June 30, 2009 and completion was subject to market conditions supporting an equity fund-raising exercise.

CIT has decided not to acquire the property as it would not be yield-accretive for the trust, Mr Calvert said. Also, he does not favour an equity fund-raising exercise at present.

‘We don’t believe that going out and doing a highly dilutive rights issue is in the interest of the shareholders when there are alternatives,’ he said.

CIT’s stock closed at 38 cents yesterday. It has gained 38.2 per cent this year.