Following the divestment of 23 Tuas Avenue 10 for S$16.5 million, Cambridge Industrial Trust has announced another divestment which is 2 Ubi View for S$10.5 million. The sale is approximate 6% above current book value of S$9.9 million and 40% premium to the purchase price of S$7.5 million in year 2006.
The continued divestment of properties may have got shareholders like me slightly worried about the financial stability of Cambridge Industrial Trust which currently makes up 1% of my stock portfolio, especially in current market conditions where the industrial market is facing headwinds.
Let me do some basic analysis on Cambridge Industrial Trust.
As of 30th June 2016, Cambridge Industrial Trust gearing ratio is 37.4% and the weighted average debt expiry is 3.1 years. Thus, debt remains healthy.
Interest Rate Exposure
86.6% of interest rate exposure has also been fixed for next 3.4 years. This means that its borrowing costs are significantly insulated against interest rate increases.
One of the important thing to look for when investing in REITs is unencumbered assets. Cambridge Industrial Trust’s unencumbered investment properties are valued approximately S$1.2 billion. This represents 82.6% of Cambridge Industrial Trust’s investment properties by value. This means, in the event of financial woes, it can sell off its properties to pay off its loans.
The Management Strategy for FY2016
Given the economic downturn and challenges in the industrial market, the management of Cambridge Industrial Trust has been prudent in coming up with a strategy.
Cambridge Industrial Trust mentioned that the divestment is consistent with its FY2016 business strategy which is to focus on divestment of non core properties and recycling capital for greater investment flexibility and better returns.
Going forward, I am expecting Cambridge Industrial Trust to further divest its non core properties, especially in current market conditions whereby rental of industrial property is lower.
The wonderful side of REIT is they sell the property and make a profit when nobody is renting or leasing it. The profit from the sale gets either returned to shareholders or used to pay off debts which eventually lowers its gearing ratio.