Cambridge Industrial Trust’s Latest Earnings: Distribution Declines Plus Tough Times Ahead

Cambridge Industrial Trust  (SGX: J91U) released its fiscal third-quarter earnings report yesterday evening. The reporting period was from 1 July 2016 to 30 September 2016.

As a quick background, the industrial REIT owns a diversified portfolio of 50 properties located across Singapore, with a total gross floor area of approximately 8.4 million square feet and a property value of S$1.4 billion as at 30 September 2016.

The properties range from logistics, warehousing, light industrial, general industrial, a car showroom and a workshop, to a business park. They are also located close to major transportation hubs and key industrial zones island-wide.

Financial highlights

The following’s a quick summary of some of Cambridge Industrial Trust’s latest financial figures:

  1. Gross Revenue for the reporting quarter was S$27.6 million, a slight 2.9% decline compared to the same quarter last year.
  2. During the same period, the trust also registered an 8.3% decline in net property income (NPI) to S$19.9 million. The lower NPI is attributed to higher operating expenses from properties being converted from a single-tenanted model to a multi-tenant model.
  3. With that, the distribution per unit (DPU) came in at 0.987 cents, down 18.0% from a year ago.
  4. Cambridge Industrial Trust’s net asset value is at S$0.669 per unit as of 30 September 2016; this is down by 0.9% from the S$0.675 seen in the third-quarter of 2015.
  5. As of 30 September 2016, Cambridge Industrial Trust has total debt of S$526.0 million, a gearing ratio of 36.9% and an all-in annual financing cost of 3.65%. This stacks up against the self-same numbers of S$533.7 million, 37.2% and 3.70%, respectively, seen in the previous year. But, the REIT”s interest coverage ratio had fallen from 4.0 times to 3.6 times.

To sum up the reporting quarter, Cambridge Industrial Trust saw its revenue and distributions shrink over the past year. The trust’s progress in terms of conversion of its properties’ leases from single-tenancy to multi-tenancy may be worth watching.

Business highlights

Cambridge Industrial Trust ended the reporting quarter with an occupancy rate of 93.6%, which is down from the 95.4% seen a year ago.

The REIT also reported a negative rental reversion rate of 4.5% for the first nine months of 2016. This is a big drop from the same period in 2015 when there was positive rental reversion of 8.5%.

Outlook and valuation

Philip Levinson, CEO of CITM, gave the following comments on the REIT’s capital allocation and debt-management:

“In this quarter, we have fully unencumbered our property portfolio and have no major refinancing requirements until 2H2018, which provide us with greater operational and financial flexibility.”

In its earnings release, Cambridge Industrial Trust said that it expects “results for 4Q2016 [fourth-quarter of 2016] to be negatively impacted.” A weak manufacturing sector in Singapore, coupled with a growth in supply in the industrial property market, are some of the reasons why the REIT had the statement shown just above.

Cambridge Industrial Trust’s units closed at S$0.55 each yesterday. At that price, it trades at 0.8 times its book value and offers a trailing distribution yield of 7.8%.

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