Treasury Today Country Profiles in association with Citi

Cambridge Industrial Trust Management

Cambridge Industrial Trust Management, Highly Commended, Best Financing Solution

Joel Cheah, Cambridge Industrial Trust Management

This solution relates to the refinancing of a S$250m Club Loan facility. S&P was convinced on the strategic direction that the Trust was moving towards and provided a provisional credit rating of "BBB-" on the MTN issued by the Trust. This was a significant milestone for the Trust, it was the only BBB-rated industrial Singapore-real-estate investment Trust (S-REIT) who could issue investment grade notes.

Photo of Joel Cheah, Cambridge Industrial Trust Management.

Joel Cheah

CFA (Treasurer)

Cambridge Industrial Trust Management (“CITM”) is the Manager of SGX-listed Cambridge Industrial Trust (“CIT”). CIT invests in quality income-producing industrial properties and has a diversified portfolio of 51 properties located across Singapore, with a total gross floor area of approximately 8.5m sq. ft. and a property value of S$1.4bn as at 30th September 2015.

Strategic planning and seamless execution results in successful refinancing of the S$250m Club Loan facility

The challenge:

CIT had a S$250m Club Loan Facility due in Fiscal Year (FY) 2016. To proactively manage refinancing risks, a refinancing solution was proposed to tap into both loan and MTN markets to refinance the Club Loan.

The refinancing proposal was submitted to Standard & Poors (“S&P”), CIT’s primary credit rating agency. The Trust has proposed to refinance the secured Club Loan with a mixture of MTN and unsecured bank loan facility. The refinancing process would have allowed the Trust to release about S$700m of secured assets. S&P was convinced on the strategic direction that the Trust was moving towards and provided a provisional credit rating of “BBB-“on the MTN issued by the Trust.

This was significant milestone for the Trust as the Trust was the only BBB-rated industrial Singapore-real-estate investment trust (S-REIT) who could issue investment grade notes. Other BBB- names were only able to issue unrated notes (due to the notching down effect based on existing credit rating methodology).

We are honoured to be recognised with an Adam Smith Asia Award for our prudent capital management efforts. As we were up against bigger and more recognised treasury teams from MNCs in Asia, it was particularly gratifying to be punching above our weight.

The solution:

The S$250m Club Loan was fully refinanced with:

  • S$130m five-year MTN (CIMB Bank was sole book runner).

  • S$150 unsecured bank loan facility (of which S$100m is term loan and S$50m is revolving credit facility).

The solution was a game-changer for the Trust because it meets the following objectives:

  • No major refinancing requirements until FY2017.

  • All-in cost of debt stable at approximately 3.69% pa and weighted average debt expiry lengthened to 3.8 years.

  • Unencumbered properties in excess of S$1.1bn, representing close to 80% of total investment properties by value.

  • 96.5% of the interest rate exposure is fixed for the next 3.5 years.

“The investment-grade rating on the bond was an important factor which bond investors look at when considering pricing and whether to participate in a bond issuance,“said David Mason, COO and CFO of CITM. “It has certainly generated more interest from institutional investors and private banking customers. This has manifested itself when our book was more than two times subscribed.”

Best practice and innovation:

  • Prudential management of refinancing risks ahead of the Club Loan’s maturity.

  • Locking in cost-effective rates while lengthening the debt maturity profile of the Trust.

  • Keeping majority of interest rate exposure hedged to ensure stability in income distribution to Trust’s unitholders.

  • Pro-actively engaging S&P to receive provisional credit rating on upcoming MTN issuance. This helped the Trust market investment grade notes to investors at a tighter pricing, which in turn generate cost savings to the Trust.

  • Negotiating for an unsecured bank loan facility, not common for boutique S-REITs.

  • Doing face-to-face investor roadshows in Singapore, Malaysia and Brunei to create market awareness of the Trust. That was instrumental in getting regional demand and tightening coupon yields for the Singapore-dominated notes issued.

  • Increasing the level of unencumbered assets to 80% of the value of all investment properties, enhancing the capital structure of the Trust markedly.

Philip Levinson, CEO of CITM, concluded “this refinancing is the latest step in our prudent capital management strategy. As a result, we have no major refinancing requirements until FY2017. In addition, we have fixed 96.5% of our interest rate exposure for the next 3.7 years, which substantially insulates the Trust’s distributable income from adverse interest rate movements.”

Key benefits:

  • Boutique Trust, overcoming all the odds, punching above its weight in the debt capital markets and executing transactions that enhance the capital structure significantly.

  • Seamlessly executed within a quarter.

  • Unencumbered assets now in excess of S$1.1bn.

Key learning points:

  • Strategise and plan ahead of time. This will alert you to the main opportunities and windows in the market, giving you ample time for execution.

  • Be selective when choosing of banking partners. Synergised and committed banking partners will provide bespoke solutions capable of catering to your needs.

  • Ensure the sincere engagement of potential investors. The management team ran three roadshows (local and overseas) and met up with many potential investors in face-to-face meetings. The sincere engagement we had with them was a key reason for their strong support shown in the MTN issuance.