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AIMS AMP Capital Industrial REIT: Consolidation and corporate rating.

Wednesday, September 7, 2011

Some readers left comments here in my blog while others wrote me emails asking me about the proposal by AIMS AMP Capital Industrial REIT to consolidate 5 units into 1.

Personally, I am not really concerned with this exercise. Why? 

The fundamentals will not change with this exercise. It is still the same REIT with the same fundamentals. As for whether the REIT's unit price will do better or worse after consolidation, if only I knew.

Am I not doing anything with regards to this exercise? I will continue to monitor the REIT's unit price. If its valuation becomes very compelling, I will buy more at supports. If the unit price were to retest resistance, I could divest.

A more important and positive development is the upgrading of the REIT's corporate rating by Moody's. The new rating is Ba1 with a stable outlook. A stronger rating improves investors' confidence and could make borrowings cheaper and more accessible for the REIT.

The improvement in rating is even more significant when we take into consideration the redevelopment of 20 Gul Way.

In an earlier blog post, I said that the redevelopment is a step in the right direction as the REIT moves to maximise the use of its plot ratio of 1.4x from the current 0.46x.

However, there will be short term pain manifested in various forms during the redevelopment period. The most immediately apparent would be the loss of rental income from 20 Gul Way during the redevelopment period.

I estimate a reduction of about 9% in distribution income which means that the DPU per year once the proposed redevelopment is underway could be lowered to 1.99c, assuming that the REIT pays out 100% of its distributable income.

At a unit price of 20c, therefore, the REIT still offers an attractive proforma distribution yield of almost 10%. If the REIT were to reduce payouts to 90% in view of the said redevelopment, we are still looking at a proforma distribution yield of almost 9%.

AIMS AMP Capital Industrial REIT and Sabana REIT have almost equal weightage in my portfolio and, together, form about 50% of my total investment in the stock market. They are likely to remain significant passive income generators for me.

Read full report from Moody's here.

Related post:
AIMS AMP Capital Industrial REIT: Higher DPU and 20 Gul Way.


Musicwhiz said...

Somehow people still have the perennial misconception that a share consolidation or share split actually changes something about a company or entity.

Look at Centillion - consolidating 100 shares into 1. So you end up with less shares of a lousy company, but the fact remains - the company is lousy!

AK71 said...

Centillion? Never heard of it. Sounds like Centurion. Not a character in the HBO production, Rome, is it? ;p

INVS 2.0 said...

Hi Ak71,

Thanks for this blog post. I have a clearer picture of this latest move by AIMSAMP. :)

AK71 said...

Hi INVS 2.0,

I am glad this blog post is helpful. You are welcome. :)

Musicwhiz said...

Centillion used to be called Citiraya. I think it was Mr. Oei Hong Leong who purchased shares in the troubled company as a "white knight" to save it at $0.002XXX per share (yes, you read it correctly, it was less than 0.1 cents per share). He later sold out his stake during the 2007 bull market at around 15-20 cents, making a ton of money (that's why he's called a savvy investor).

Meanwhile, the company floundered, coughing up mostly losses and suffering cash burn over many quarters. Hapless minority shareholders could only stare helplessly as the share price shrivelled to the current dismal state. There's a chance that after the consolidation, the market cap of this company may shrink even more, given the chance.


AK71 said...

Ah, the old Citiraya. Never paid it much attention although I remember it being in some trouble.

Mr. Oei didn't buy shares of the company, he bought into the business. Therein lies the difference between Mr. Oei and retail investors like us. ;)

David said...

Hi AK71,

I'm a bit confused with this counter. Previously it was going at about 0.19x = 0.2x
now suddenly it's 0.9xx- 1.1x
they're doing a consolidation.. but interestingly it's not reflected in the CDP. Is there something missing here?

AK71 said...

Hi David,

It probably takes some time for it to be reflected. I don't think there is any problem. :)

Anonymous said...


I bought Aimsreits prior to the consolidation at 0.20. However, it seems to be still park at the old stock code.
Please advise, I am a newbie in shares.


AK71 said...

Hi TT,

The new code is O5RU. Check with your broker if in doubt. :)

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