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AIMS AMP Capital Industrial REIT: Sell the rights.

Thursday, September 2, 2010

Now, this blog post's title might make it look as if I have changed my mind about the REIT.  No, I have not.

Some people are wondering if they should accept and pay for the rights or if they should just sell the rights away.  To me, it is a no brainer to accept and pay 15.5c for the rights shares.  With a DPU of 2.08c per annum estimated, post rights, the yield is a most irresistable 13.42%!  In fact, we should apply for excess rights and hope to get more units at 15.5c.

Well, that's all very nice but what if we have no money to pay for the rights or what if we simply do not want to fork out more money? Would our stakes be heavily diluted? Apart from the NTA per unit declining from 31c to 26c, the dilutive effect is not as bad as some opponents to REITs make it out to be.

REITs are income instruments.  Therefore, we must remember that we are investing in REITs for regular income.  The DPU per unit would decline from 2.15c to 2.08c, post rights.  This is a DPU loss of 0.07c a year.  It is not dramatic.  We would also be able to sell away the nil-paid rights when trading starts.  At an exercise price of 15.5c and with expectations that price would see a modest decline to 21c per unit, post rights, we can expect the nil-paid rights to trade at around 5.5c each.  Selling these away would bag 30 months' worth of DPU (post rights) straightaway!  Now, is that such a bad thing?

On top of that, our current investment would still make an annual DPU of 2.08c!  This is provided that everything remains constant, of course.

Accept and pay for the rights or sell away as nil-paid rights, either way, unit holders end up winners.  There will always be detractors but as long as we are clear headed and know what to do in any given scenario, we will be fine.  Good luck to fellow unit holders.

Related post:
AIMS AMP Capital Industrial REIT: Rights issue.


la papillion said...

Hi AK,

So says the priest of aims, so say we all ;)

AK71 said...

Hi LP,

I was not aware that there is a Church of AIMS as well. I thought there is only a Church of Saizen. ;p

To anyone scratching his head reading these comments, LP is the blogmaster of Bully the Bear where you'll find his infamous cbox. I have spent much time in the cbox stating the reasons why AIMS AMP Capital Industrial REIT and Saizen REIT are good investments. :)

bummy said...

hi Priest of Aims,

thanks for putting this into perspective. i may have to sell my srs nil paid rites to conserve srs cash. Need to work out the finer details first.

AK71 said...

Hi bummy,

I am very happy to put things in perspective for my flock. I like how you spelled "rights" as "rites". On purpose? haha...;p

Glória Patri, et Fílio, et Spirítui Sancto.

Paul said...

Hi AK,

Do you think it is still worthwhile to go in AIMS now? and subscribe to the rights?

AK71 said...

Hi Paul,

To answer your question, I would have to ask you what is your motivation for buying into the REIT? If you are after a 10% yield, yes, buying in now would give you that and more.

Assuming you buy 20 lots at 22c, you would have to pay for another 7 lots (rights) at 15.5c. Average price: 20.31c. Estimated DPU 2.08c. Yield 10.24%. :)

Of course, I would apply for excess rights as well. If successful, that would bump up the yield even more. Good luck. :)

Anonymous said...

Hi AK71,

I am currently holding some units of AIMS. As I have never experience a rights issue, could you advise the followings:
(1) Based on the dates given, at which date do we need to pay for the rights accorded to us?
(2) how do we apply for access rights?
Thanks in advance!

Anonymous said...

i mean excess rights in my previous post :P

Paul said...

Yes, going for the dividend, looking at either saizen or this one. Currently, worried about the yen, and the politics in Japan. Any major yen movement will affect dividend payout and also the sentiments for properties, and japan politics are not very stable in recent months. what are your views?

Paul said...

I could go in now, and buy at 0.220, and get the rights, which would cost me an avg of 0.203 for 27 lots. If i wait for the nil-paid rights, with the exercise price, i would be paying approximately at 21c? which means i should go in now, to reduce my holding?

I am considering this or saizen for the yields, but my concern would be the economic conditions of japan. both would give me a yield of 8-10%.

any comment about the economic conditions affecting the prospect of Saizen? it has huge volume in the past 2 sessions

AK71 said...

Hi Anonymous,

The REIT will go XR on 15 Sep. Trading of Nil Paid Rights will start on 24 Sep and will close on 4 Oct. The last date for acceptance and payment is on 7 Oct. So, you could pay anytime from 24 Sep to 7 Oct.

The last time I experienced a rights issue was for Healthway Medical. Quite some time back. If I remember correctly, when you go to the ATM to pay for the rights you have been given, there will be another column for excess rights.

So, first entry is for the rights we have been given and the second entry is for the number of excess rights we want to apply for. Please double check when you are at the ATM. :)

AK71 said...

Hi Paul,

In reply to your 1st comment:
If you are worried about so many things about Japan, for a peace of mind, stay away from Saizen. ;)

In reply to your 2nd comment:
As for timing the entry into AIMS, it is hard to say what the nil paid rights could be trading for when the trading window opens. A logical guess is 5.5c but the market could be anything but logical.

What would I do? If the current yield is acceptable to me, I would enter. If it gets cheaper, I would buy more. :)

With regards to Saizen, the demand for its properties is quite inelastic. This is demonstrated by its >90% occupancy even through the recent global financial crisis. The thing that could make it less attractive is the weakening of the Yen, which could happen. I expect that the REIT manager would hedge against this if the likelihood increases in future. :)

Anonymous said...

Hi AK71,

Thanks for your explanation. Can I further asked that during the rights trading period when some people can sell their rights, from the buyer's point of view, wouldn't he be buying at the ex-right price of the stock? If so, he would have no incentive to buy the rights instead of the stock outright. So who would be the buyers of the rights then?

AK71 said...

Hi Anonymous,

I forgot to ask for your name or initials in my reply to your last comment. I feel bad for calling you "Anonymous". :)

Indeed, who would buy the nil-paid rights when they start trading? I suppose some rights holder could sell at a slight discount to make it more attractive. Perhaps, ask for 5c instead of 5.5c? This is pure guesswork on my part, of course.

As investors, we want to seize opportunities if they present themselves. If there are cheap rights, I would buy some. :)

DC said...

Hi AK71,

I'm DC. :)

AK71 said...

Hi DC,

I guess you must be "Anonymous"? Thanks for visiting and leaving comments. Do visit often. Have a great weekend. :)

Anonymous said...

Unless I am mistaken, AIMS REIT should book in a one-off gain of $3.5 million from Nova's 2 year worth of forfeited rental deposit this quarter. I guess it will be used to top-up the DPU since there will be an increase in share float though their latest acquisition will only start contributing in Oct onwards.

Another thing, I wish to point out -

AIMS is raising $79 million from the rights issue of which around $69 million will be used for the latest acquisition. This means that a further $10 million will be retained for 'working capital purposes'. As of 30 June 2010, AIMS reported that it is holding $22 million cash in its balance sheet. This means that there is additional $32 million worth of cash available for acquisition purposes. It also has $8 million untapped debt in its $280 million loan facility. Its fellow industrial REIT, Cambridge Trust acquired 2 properties for $37 million and it will $3 million to their annual net property income. So, to put things in perspective, I can safely expect smaller acquisitions to take place in the coming months to boost the DPU further.

The usual disclaimer - do your own research and apologies in advance for any incorrect info.

Nick :)

Paul said...

Hi AK,

Thanks for your opinion. Regarding exercising rights, do i need to pay any commission if i exercise the rights. I would need to pay commission when i buy the nil-paid rights. Do i have to pay the commission again if i exercise these rights?

As the amount which i am investing is small, paying for the comission would have increased the cost of purchasing the stock.

AK71 said...

Hi Nick,

Thanks for the comments. Very insightful, as usual. :)

Yes, the possibility of a smaller size acquisition in future without further fund raising from unit holders is definitely there for this REIT. This would bump up the DPU further. If this comes to pass, it would be more good news for unit holders. :-)

AK71 said...

Hi Paul,

To exercise the rights, just visit an ATM and, if I remember correctly, you are charged only a $1 fee.

If you buy nil paid rights in the stock market, you would have to pay brokerage fee, the exact amount depends on which brokerage you are with. To exercise these rights, total up the number you bought in the stock market and the number you have been given for free and go to the ATM to pay for them (15.5c per unit). You will only have to pay a fee of S$1 as it is considered one transaction only. :)

Paul said...

Hi AK,

Thanks for the feedback. Either way, i would pay 25 as brokerage fees, and $1 to exercise the rights.

If buying it now would give me a secure, approx cost of 20.5c per share. I think i am going to risk it and wait for the nil paid rights trading. Will discuss with my Remisier next week. Thanks for the advice!

AK71 said...

Hi Paul,

That sounds like a plan. I hope all of us make some good money here. Good luck. :)

Anonymous said...

Hi AK71, I am also a investor in AIMS. The rights issue is ok but I think the big boys are "bullying" small investors because each and everyone of them gets a fee to under-write the issue (to the tune of 2%). Feel lousy....

What do you think?


AK71 said...

Hi CM,

The fee that you are talking about is a standard practice. I wouldn't pay it much thought. No point thinking about something that we have no control over, right? We do what we must and we do what we can. :)

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