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AIMS AMP Capital Industrial REIT: 1Q FY2013.

Thursday, July 19, 2012

DPU is 2.5c, 0.2c lower than in the last quarter. This is within expectation. Some might remember when a reader was elated that the REIT was paying 0.1c more in DPU per quarter culminating in 2.7c in the last quarter, I mentioned that it would probably not be repeated in this quarter.

The REIT will go XD on 31 July and income distribution is payable on 18 September.  With unit price at $1.30 or so, we are looking at a distribution yield of 7.69%, annualising the 2.5c DPU for the quarter (representing 97.7% of its income available for distribution). However, we are likely to see income improving towards year end and the REIT is likely to pay out all of its income available for distribution in Q4. So, the distribution yield for the whole year could be a bit higher, everything else remaining constant.

NAV/unit: S$1.40

Gearing: 29.7%

Interest coverage ratio: 6.0x

Occupancy: 99.1%

Weighted land lease expiry: 41.8 years

Average security deposit: 7.2 months

The management is actively managing the REIT's lease expiry risk and has made good progress since the last quarterly report. If it continues with the positive momentum, we could see more positive rental reversions and this could be DPU accretive.

Of the REIT's total debt of $279.4m, $113.6m is maturing in October 2013. I would like to see the REIT's manager getting this out of the way with a longer 5 years term loan instead of the usual 3 years. Of course, it makes sense to do so as it locks in a lower cost of capital in the current low interest rate environment. It will bolster investor confidence in the REIT.

For anyone investing for income and thinking to continue doing so for another few years at least, the REIT's DPU is likely to increase some 15% by end of 2013. This is very attractive and probably explains why the REIT's unit price has been on a steady climb upwards in recent weeks.

People ask if they should sell now and buy lower at a later date. People also ask me if they should buy now anyway as price could continue to go higher with expectations of a higher DPU in the coming quarters.


Answer:
I would not tell you what to do (surprise, surprise). I would share with you what I am doing: nothing. What investment I have in the REIT now is part of a core portfolio for income. Whatever I bought to trade for capital gains, I have already sold. If the REIT's unit price should weaken significantly, I would buy again. If its unit price should strengthen more significantly as to compress distribution yield by much more, then, I would consider further divestment. Now, I am keeping the status quo.

See presentation slides: here.

Related posts:
1. AIMS AMP Capital Industrial REIT: 4Q FY2012.
2. AIMS AMP Capital Industrial REIT: Making money.

10 comments:

CS said...

Hi AK, AA-reit is also one of my favourites. However, I sold some of my holdings recently at $1.30 for a capital gain of 25%. My own view is that: If the yield of my holding is currently 10% p.a., the capital gain of 25% represents my future dividend income of 2.5 years (of course this is not entirely correct as the dividend payout may increase or decrease). So if I collect the gain now instead of waiting for 2.5 years, I should be (or may be) able to buy back at a lower price within this period given the current very volatile and uncertain market conditions world wide which do not seem to be settling down anytime soon. I am betting my luck or timing the market. But do you think it make sense?
Regards,
CS

AK71 said...

Hi CS,

There is no accounting for luck. Impossible to make sense of it. So, I can only wish you good luck. :)

Personally, when I bought into these REITs, I had in mind a certain amount of investment I want to make so that I could benefit from the regular income distributions. I think of these positions as being part of my core investments for passive income generation.

Additionally, I also bought more, increasing the weight of my long positions in these REITs during bouts of market weakness. These, I regarded as trading positions. These, I readily sold for capital gains. On hindsight, as usual, I sold too early.

Now, I am not saying that my plan is better than anyone else's. As long as we have a plan that makes money and allows us to sleep well at night, it is a good plan. :)

Jay said...

Hi AK,

Thanks for your insightful comment! I was in fact hoping to see your comment coming up after seeing the results this morning for myself.. ;-)

Similar to you, I get a very positive feeling regarding the future upside in income and distribution. This management seems to know what they are doing and not only is current yield decent, but we can even expect some improvement over time (unlike K-Green hehe).. I love these kind of stocks! But the +30% or so this year makes me wonder if the time is ripe for a consolidation.. Similar to CS I think that there's a good chance to hit 1.20 or lower again with some market craziness and that would equal to one year of distribution.. I investen in AA REIT also for income but equally will not make a fetish out of it, as I dont depend on this income (yet).

So I might want to sell soon, but at what price?? Ahh, the pleasures of following the markets daily.. ;-)

Thanks again for a great contributions!
Jay

INVS 2.0 said...

Hi Ak71,

AIMS is a star buy but too expensive to accumulate now. I just divested my remaining lots at a nice profit (bought myself a new guitar as a present, haha)!

AK71 said...

Hi Jay,

Indeed, we could see lower prices if Mr. Market suffers from depression in future.

However, seeing how REITs have been holding up while the broader market suffered makes me wonder if Mr. Market could suffer from split personality disorder instead of a general depression. ;-p

I won't say that I would sell to lock in gains because I don't need the passive income though. I am making passive income a big part of my finances. I think of it as an insurance too. Could I not lose my job the next day? Cash in the bank earns me almost nothing.

Our behaviour all depends on what motivates us to be invested in the first instance. So, there is no right or wrong. :)

AK71 said...

Hi INVS 2.0,

You are enjoying a double happiness: made money from the sale and bought yourself a gift. ;)

I am happy for you. :)

JCK said...

Passive income or instant gratification?
Thats the question.
Even though i am a late comer to the REIT party, i am already up 20%from Jan.

Like some theres is an urge to divest out from AIMS.
Many times i have rode a horse for too long, losing out in the long haul.

Decisions, decisons. :)

AK71 said...

Hi JCK,

Indeed, to be or not to be? Haha.. A dilemma since time immemorial. ;)

This is why to make it easier for me, I always have two tranches: one for investment and one for trading. :)

Jay said...

I guess that's the conclusion for me as well: partial divestment (you income vs trading distinction is implicitly the same).. so now the question is what price.. price continues to fall, hopefully I didnt miss out the peak yet...

And good point on the relative performance of REIT's.. I would not expect that to continue, though. Also, let's not forget that STI overall has been doing quite well so far this year...

AK71 said...

Hi Jay,

Indeed, I could be making a distinction but there is no significant difference. ;)

I suppose the only advantage I have is a clearer demarcation on how much is for income and how much is for trade. :)

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