/ 1 5 3
NOTES TO THE FINANCIAL STATEMENTS
C A M B R I D G E I N D U S T R I A L T R U S T
A N N U A L R E P O R T 2 0 1 5
25.
Financial instruments
Financial risk management
Capital management
As part of its finance policy, the Board of the Manager (the “Board”) proactively reviews the Trust’s capital and
debt management regularly so as to optimise the Trust’s funding structure. The Board also monitors the Group’s
exposure to various risk elements and externally imposed requirements by closely adhering to clearly established
management policies and procedures.
During the year, the Group was subject to the Aggregate Leverage limit as defined in the Property Fund
Appendix of the CIS code. The CIS code stipulated that the total borrowings and deferred payments (together
the “Aggregate Leverage”) of a property fund should not exceed 35% of the fund’s deposited property. The
aggregate leverage of a property fund may exceed 35% of the fund’s deposited property (up to a maximum of
60%) only if a credit rating of the property fund from Fitch Inc., Moody’s or Standard and Poor’s was obtained
and disclosed to the public. The property fund was required to maintain and disclose a credit rating so long as its
aggregate leverage exceeded 35% of the fund’s deposited property.
The Trust has maintained its corporate rating of “BBB-/Stable/--” with Standard and Poor’s and obtained an issuer
rating of “Baa3” with Moody’s Investors Service. The Trust complied with the Aggregate Leverage limit of 60% during
the financial year. There were no changes in the Trust’s approach to capital management during the financial year.
As at the reporting date, the gross amounts of loans and borrowings as a percentage of total assets was 36.9%
(2014: 34.8%).
With effect from 1 January 2016, real estate investment trusts (“REITS”) are subject to a single-tier aggregate
leverage limit of 45% without the requirement of a credit rating and the option for REITs to increase their
aggregate leverage up to 60% by obtaining a credit rating has been removed.
Overview
The Group has a system of controls in place to create an acceptable balance between the cost of risks occurring
and the cost of managing the risks. The Manager continually monitors the Group’s risk management process to
ensure an appropriate balance between risk and control is achieved. Risk management policies and systems are
reviewed regularly to reflect changes in market conditions and the Group’s activities.
The Audit, Risk Management and Compliance Committee (“ARCC”) oversees how management monitors
compliance with the Trust’s risk management policies and procedures and reviews the adequacy of the risk
management framework in relation to the risks faced by the Trust. The ARCC is assisted in its oversight role by
Internal Audit. Internal Audit, which is outsourced to a public accounting firm, undertakes both regular and ad
hoc reviews of risk management controls and procedures, the results of which are reported to the ARCC.
Credit risk
Credit risk is the potential financial loss resulting from the failure of a customer or a counterparty to settle its
financial and contractual obligations to the Group, as and when they fall due.
The Manager has established credit limits for tenants and monitors amounts receivable on an on-going basis.
Credit evaluations are performed by the Manager before lease agreements are entered into with the lessees.
In addition, the Group requires the lessees to provide tenancy security deposits or corporate guarantees, or to
assign rental proceeds from sub-lessees to CIT.
TheManager establishes an allowance for impairment that represents its estimate of losses in respect of trade and other
receivables. The main component of this allowance is estimated losses that relate to specific tenants or counterparties.
Cash and fixed deposits are placed with financial institutions which are regulated.
At the reporting date, except as disclosed in Note 7, there were no significant concentrations of credit risk. The
maximum exposure to credit risk is represented by the carrying value of each financial asset on the Statement of
Financial Position.
