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Cambridge Industrial Trust: Worth another look.

Friday, October 14, 2011


I was looking at Cambridge Industrial Trust's latest presentation slides. It could be worth another look as its income could bump up quite meaningfully in 2012 and 2013.

Latest numbers:
Gearing: 33.1%
(No refinancing due till 2014.)
NTA/unit: 61.7c
Interest cover ratio: 5.1x
DPU: 1.082c

What I find attractive:
1. Built-To-Suit Project at Tuas View Circuit. Completion by 3Q 2012.
2. Built-To-Suit Project at Seletar Aerospace Park. Completion by 3Q 2013.
3. AEI for 30 Toh Guan Road. Completion by 4Q 2012.
4. AEI for 88 International Road. Completion by 4Q 2013.
5. AEI for 4 & 6 Clementi Loop. Completion by 4Q 2012.
6. Proposed acquisition of 25 Pioneer Crescent.


With gearing level at 33.1%, the Trust has ample debt headroom to finance items 1 to 5 if the management should decide to take on more debt. This would mean greater distribution yield accretion.

Item 6 is to be financed with internal cash resources which means gearing level will not go up and the purchase will be distribution yield accretive, everything else remaining equal.

Buying now at 46c per unit will give a distribution yield of about 9.4%. Even with all the initiatives announced, I would like to see this yield going nearer to 10% before increasing my investment in the Trust.

See presentation slides here.

14 comments:

INVS 2.0 said...

Hi Ak71,

I thought you dislike its boss? Haha...

AK71 said...

Hi INVS 2.0,

Mr. Chris Calvert has failed us before and I can only hope that the initiatives listed here will be executed flawlessly.

Crossing fingers. ;)

Calvin said...

AK,

Just buy a little bit for fun la. But I would wait till the price comes to about $0.42-$0.43. That was my purchase price just last couple of weeks.

Calvin
http://www.investinpassiveincome.com

AK71 said...

Hi Calvin,

I already have a long position in this REIT. I am in no hurry to buy more.

David & Thi said...

Hi AK71,

Have you take a look at Cambridge REIT latest result annoucement?

I am surprised by the large performance fee which is charged based on Market Capitalization resulting in fee of $27.7 million which is almost equal to 6 months of distribution income to unit holder.

The manager opt to waive 50% of the fee but i should think that this is way too much.... your thought?

Outperformance of 16.9% equates to additional value of S$138.4 mil created

• The Manager is entitled to a
performance fee of S$27.7 mil
• The Manager voluntarily and irrevocably elected a waiver of 50%, resulting in a final fee of S$13.9 mil.

AK71 said...

Hi Yee,

They waived 50% of the performance fee to avoid a public backlash. They didn't have to, of course.

A performance fee based on Market Capitalisation doesn't make sense to me. People want to invest in stocks which reward them. Now, if the unit price should go up, investors are penalised instead? Some of us might remember that this happened with CitySpring Infrastructure Trust in its early days when its unit price shot through the roof.

For examples of better ways to structure performance fees, see: REITS: Performance Fees.

We want to invest in REITs in which its management's interests are aligned with those of investors'.

David & Thi said...

Hi AK71,

I am glad that i no longer hold any Cambridge REIT. Although they have waived 50% of the so called performance fees.

I think this structure is not correct or benefit to all parties. Management should have performance fees based on increase in distribution income instead of market cap.

Saying good bye to them.... no comfortable with the leadership anymore. This is same CEO that landed AIM REIT in trouble in the past.

AK71 said...

Hi Yee,

Yes, you remember! Chris Calvert was the guy who landed MI-REIT (now AIMS AMP Capital Industrial REIT) in BIG trouble and had the cheek to create more mayhem and lost millions for Cambridge Industrial Trust in the process when George Wang et. al. tried to recapitalise MI-REIT.

Some people think I have a personal grudge against Chris Calvert because I was talking about it a lot for a while. I don't. Just stating facts. ;)

Anyway, I have a very small long position left in Cambridge Industrial Trust and, to be fair, as an investment for income, it is not too bad. It does have some pretty good assets and it also has potential to improve DPU.

The way the performance fee is calculated is a revelation. Similar to CitySpring's. I agree that it doesn't make sense.

My largest investments in industrial S-REITs are still AIMS AMP Capital Industrial REIT and Sabana REIT. These make sense to me. :)

David & Thi said...

Hi AK71,

Thanks... i think both AIM REIT and Sabana are good for high yield investment.

For Sabana REIT, the only concern is the renewal of master contract for their sizeable property which expires Nov this year. Given that their rental rate is below current market rate, i think it will be positive for the REIT.

For myself, i am holding AscendaREIT with leverage at 3.5% interest. This give me a effective ~8.5% return.

Meanwhile still waiting for Marco Polo boat to take off........

AK71 said...

Hi Yee,

I share your feelings regarding Sabana REIT having room to increase their asking rents.

I don't understand your comment on investing in A-REIT with leverage though. How is it that your cost of debt is 3.5% and yet you could get 8.5% return?

With Marco Polo Marine, I think that we have to be patient. A holding period of 12 to 24 months will most probably generate very good results. :)

David & Thi said...

Hi AK71,

What i meant is i am using leverage with 50% cash + 50% debt. The debt is at 3.5% interest and dividend yield for AREIT now is 6%+

Hence effectively the total yield based on 50% cash is >8.5%

AK71 said...

Hi Yee,

Oh, I see. :)

What if someone were to invest with 100% borrowed funds instead? What is the effective yield for him?

Just something that popped into my mind. ;p

David & Thi said...

Hi Ak71,

Maybe you can share with me where to get the 100% borrowed fund... :)

AK71 said...

Hi Yee,

Haha... I won't know. I have never borrowed to invest in the stock market before.

Some people told me I should explore the possibility. Nah. I am conservative when it comes to personal debt.

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