NOTES TO THE FINANCIAL STATEMENTS
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.
The Group is subject to the Aggregate Leverage limit as defined in the Property Fund Appendix of the CIS code.
The CIS code stipulates that the total borrowings and deferred payments (together the “Aggregate Leverage”) of
a property fund should not exceed 35.0% of the fund’s deposited property. The aggregate leverage of a property
fund may exceed 35.0% of the fund’s deposited property (up to a maximum of 60.0%) only if a credit rating of
the property fund from Fitch Inc., Moody’s or Standard and Poor’s is obtained and disclosed to the public. The
property fund should continue to maintain and disclose a credit rating so long as its aggregate leverage exceeds
35.0% of the fund’s deposited property.
The Trust has maintained its corporate rating of “BBB-/Stable/--” with Standard and Poor’s and complied with
the Aggregate Leverage limit of 60.0% 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 34.8%
(2013: 28.7%).
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 their balances 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.
The Manager 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.
CAMBRIDGE INDUSTRIAL TRUST | A WINNING FORMULA
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