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AIMS AMP Capital Industrial REIT: Making money.

Tuesday, July 3, 2012

The issue of how REITs must constantly raise funds in order to expand has been beaten to death and I have also blogged about it more than once. The debate can and probably will go on forever but, as far as I am concerned, it has little value and serves to distract us from what really matters.

If REITs are raising funds for activities that are yield accretive, I would readily support the exercise and would, in fact, try to subscribe for more than my entitlement of rights if the offer is very attractive. Bearing this in mind, I have been able to profit from rights issues. To me, as an investor, I want to make money and if I could profit from rights issues, I would.

To this end, one of the rights issues which I have made the most money out of was AIMS AMP Capital Industrial REIT's. The rights were priced at 15.5c per unit. I applied for many excess rights and received quite a large number of rights units in that exercise. Post consolidation, these rights units cost 77.5c per unit. At today's price of, say, $1.22 per unit, there is a capital gain of about 57.5%. From then till now, I have also enjoyed an annual distribution yield (on cost) of some 13% on these units.

Of course, there are some who would point out that the units I was holding on to, pre-rights issue, suffered some dilution and loss in value. The suggestion is that Mr. Market would recognise this and that it could be reflected in the unit price. Well, at today's price of $1.22 a unit, it would translate into a pre-consolidation price of 24.4c per unit. I don't remember ever paying as much as 24c a unit, pre-consolidation, for AIMS AMP Capital Industrial REIT. There is something to be said about a penchance for buying into REITs which are trading at a (large) discount to their NAVs, perhaps.

Why am I quite suddenly talking about AIMS AMP Capital Industrial REIT and rights issues?

OK, before you go clicking on SGX looking for announcements, no, they are not having a rights issue. Then why?

Well, some people say that I am always using First REIT as an example of how investing in REITs can be very rewarding. So, this is another example to the same effect, isn't it?

It is also a more powerful example since there were many who cursed George Wang et al. from the days when it was known as MI-REIT and in need of recapitalisation, declaring that the REIT would never amount to much after the rescue.

(Pause...)

29 Woodlands Industrial Park E1.


OK, if you have guessed that this is not the real reason behind this blog post, hurrah! You guessed correctly.

I try to be forward looking and care more about the future than I do about the past. Caring more about the past could become an obsession as I grow older though. I hope it would not happen although I am sure it is only a matter of time. I see enough examples of how it is happening to older people all the time.

The catalyst for this blog post is the annual report from AIMS AMP Capital Industrial REIT which I was flipping through over the weekend. Specifically, it has to do with the fact that quite a number of properties in the REIT's portfolio have re-development potential.

As we have seen in the current redevelopment of 20 Gul Way which is to be completed in two phases (phase 1 by November 2012 and phase 2 by December 2013), redevelopment is a very good way of delivering more value to unitholders.

The redevelopment of 20 Gul Way did not require any rights issue although there was a private placement to CWT Limited (and regular readers know that I would very much prefer rights issue but the private placement was rather small and a rights issue would have been rather costly.)

10 Soon Lee Road

Well, there are a few more properties in the REIT's portfolio which could be considered for re-development to take advantage of the maximum plot ratios allowed. Examples are:

10 Changi South Lane (Lease expiry: June 2056)
Current plot ratio: 1.60
Maximum plot ratio: 2.50

541 Yishun Industrial Park A (Lease expiry: June 2054)
Current plot ratio: 1.28
Maximum plot ratio: 2.50

2 Ang Mo Kio Street 65 (Lease expiry: March 2047)
Current plot ratio: 1.31
Maximum plot ratio: 2.50

103 Defu Lane 10 (Lease expiry: June 2043)
Current plot ratio: 1.20
Maximum plot ratio: 2.50

8 Senoko South Road (Lease expiry: October 2054)
Current plot ratio: 1.30
Maximum plot ratio: 2.50

10 Soon Lee Road (Lease expiry: March 2041)
Current plot ratio: 0.88
Maximum plot ratio: 2.50

With gearing level at 30% or so, I would not be surprised if a major rights issue is required if there should be plans to redevelop these sites. In fact, I expect it to take place. When will it take place? Ah, that one, I don't know.

If you think that I am quite excited with the prospect of another rights issue, you are right (pun unintended). I am pretty sure I am not the only one too.

Related posts:
1. REITs and rights issues: Dilutive or not?
2. REITs and rights issues: A Singaporean tale.
3. AIMS AMP Capital Industrial REIT: Accumulate on weakness.

My very first blog post on AIMS AMP Capital Industrial REIT in December 2009:
AIMS AMP Capital Industrial REIT (MI-REIT).

40 comments:

INVS 2.0 said...

Hi Ak71,

I was flipping through the annual report too, particularly on the properties. :)

I wonder how long can the price soar before Market decides to crash it. Hmm...

Feel even more tempted to accumulate this stock, but only at discounted prices of course. :)

William said...

HI AK,

Ahh.. Mentor, welcome back.
I have been waiting for a chance to enter into this REIT. If really a rights issue happens, I would not hesitate to pick up too if the price is attractive :)
What would be the right price to enter ?
Thanks for the insight and analysis.

Cheers.

AK71 said...

Hi INVS 2.0,

Mr. Market will do what Mr. Market does. Haha.. Unfortunately (or fortunately), trading volume has become very thin for this REIT.

Would you believe me if I were to tell you the REIT is still trading at a discount? Its NAV/unit is $1.40. ;)

JCK said...

Hi AK

Thanks again for further insights into AIMS.
i have accumulated a fair bit of this stock now.
Its so difficult to get them at such low volumes but managed to fish at the correction to $110 sometime back after aquiring a bundle at $1.06.

Thanks matey!

i 'presume' yer sabbath is over! :)

thumbsup*

AK71 said...

Hi William,

Yikes, please don't call me that. It sends a shudder through my body...

Right price? That is pretty subjective. Personally, this REIT is already a significant second largest investment in my portfolio. So, I am in no hurry to add more.

For someone who is thinking of getting invested in the REIT, he should ask if the current numbers are to his liking. If they are, buy some. If they are not, wait.

See the numbers:
AIMS AMP Capital Industrial REIT: 4Q FY2012.

At a unit price of $1.22 and assuming whole year DPU to remain at 10.45c, the distribution yield would be 8.57%. If we believe that an 8% yield is fairer, fair value should be closer to $1.30 a unit.

However, DPU is likely to improve another 15% by end of 2013. So, if we have a longer term view and if we are confident in the management, everything else remaining constant, DPU and fair value should go up by an equal percentage over time. Looking good?

Of course, having said all this, the best time to buy is always during market weakness. ;)

In the last bout of weakness just weeks ago, the unit price went to a low of $1.08 or so, iirc. I saw it but decided to wait a bit more. Lesson for me: just buy on dips.

coconut said...

nice AK.

you got me, i saw "right issue" or "private placement" i did check out SGX, na nothing.

i did a few times, going short those "right issue" and try to cover near the discount price haha (provided i can short ofcos).

SnOOpy168 said...

Hi AK

Was happy to hear from you. Seriously, thanks to your insights, I too got bitten by the rights bug. Building up a small war chest for this rights + excess and other buy-in opportunity. Perhaps a refresher from you about handling Nil-Paid rights will be helpful.

Was joking with a friend recently. If Temasek's AR is about 3+ % PA, then those highly paid fund managers and managements should be fired. Why ? Easily any REITs will out do them. Plus, this is really passive income counter. Very suitable to newbie/lazy bumbs like me. Or perhaps having that certain pastor that promises "50 , 100 fold returns" will sure make us rich. Even after giving him another Sentosa Clove bungalow.

BTW. Listened from a certain stock guru's Youtube video that buy/sell takes place when the long & short term MA lines crossed. Are you familiar with this and what is the MA settings for this (i.e. no. of days). Naturally, I can't find the answer on the video as he meant to entice sign-up for the course.

AK71 said...

Hi JCK,

Until a few months ago, it was quite easy to buy units of this REIT and much cheaper too. It seems that unitholders are rather unwilling to sell since. I think it is not unreasonable to conclude that Mr. Market expects more good news from this REIT. :)

I am still on a sabbatical but I am blogging while on a sabbatical from blogging. Haha.. This arrangement would allow me to disappear from the blogging scene for extended periods without feeling that something is amiss. ;p

AK71 said...

Hi coconut,

You are a trader and must do what a trader does. I suppose there are other ways to profit from a rights issue. As long as you make money, I am happy. ;)

In fact, I encourage shorting as it would push prices even lower so that I could buy more on the cheap. ;p

AK71 said...

Hi SnOOpy168,

Aiyoh, I have so many blog posts on rights issues by now. A refresher would be quite redundant, especially for old timers like you. ahem ahem...

Just search my blog and you will be able to find my old (and stale) blog posts on rights issues of various REITs (and even a business trust and a company). The mechanics are simple enough. :)

As for Temasek Holdings and a certain pastor's riches, er... "Ho Cheng Kong Hee" sounds like a very rich and powerful business. Don't pray pray.. I mean play play. Er, or did I mix it up with "Ngee Ann Kong Si". Aiyoh... My memory is no good... Please forgive me.

You want to learn about MAs and crossovers har? OK lor, this is easier to explain and account for than a certain Crossover Project involving S$50m.... OK, ok.. I must stop... ;p

I am going to point you in the right direction and you go read it up:

Investopedia: Moving Averages.

No need to pay any gurus any fees to learn about MAs. Hey, I have mentioned it frequently in the TAs done in my blog or don't you recall?

coconut said...

well said AK,

na, let me cover my short first before you buy on the cheap haha.

not always make money though, remember short one Ascendasreit, instead of going down, it went right up and got scoop haha. but usually they went down right towards the discounted or issue price.

AK71 said...

Oh my, coconut, are you asking me to participate in price rigging? Cannot, cannot. "Local blogger invited to lim kopi by gahment." And I don't even like kopi. :(

We can't always rely on past experience for guidance, of course, but we have precious little to rely on otherwise. ;p

SnOOpy168 said...

thanks AK

My memory fading lah. Rather than to comb thru, I liked to attend refresher course. An excuse for free tea & lunch buffet.

MA - my only question was the choice of days. In the link, it says 15 & 50 MA (for example). What will you be using ?

AK71 said...

Hi SnOOpy168,

Go and comb my blog, don't be lazy. Haha.. ;)

Refresher course comes with free tea and lunch buffet? Where is this course? Maybe, I should go too. ;p

I always use the 20d, 50d, 100d and 200d MAs, if you see the charts I draw.

The 20d MA is the middle line of the Bollinger Bands in ChartNexus. Since I always switch on the Bollinger Bands, it is just a matter of convenience for me to use the 20d MA. I do not think there is a big difference if you were to use the 15d or 20d MAs.

coconut said...

ya got to be careful, i read one prop trader doing arbitrate and landed up in court.

i immagine they offer say an investment banker certain amount of shares at a discount, what will the banker do? sell down the share ofcos. i just go for a ride.

AK71 said...

coconut, I went to a mission school and was taught the Lord's Prayer. It is strange how I can forget things which happened recently but I can remember things from more than 30 years ago. Is this normal?

...Give us our daily bread.
And forgive us our trespasses,
As we forgive those who trespass against us.
And lead us not to temptation,
But deliver us from evil...


Temptations indeed. Radix malorum est cupiditas.

Howyuan said...

AK71, i thought you are on sabbatical? Your post is now more frequent than before sabbatical.

><"

AK71 said...

Hi Howyuan,

OMG! You are right! OK, I hear you. ;)

coconut said...

whoa, too "chim" for me.

well as for memory, there is good news and bad news.

the good news is i'm also like that haha. i can get piss off with my buddy in the day and happily drinking coffee at night.

now the bad news, i know of very old people they actually forget about the present/recent and thinking they are some 30 40 50 years younger, towards their end of life.

i hope i'm not freightenning you.

AK71 said...

Not chim lah, coconut. It is Latin, not chim. Haha..

Radix malorum est cupiditas = the love of money is the root of all evils.

See what can happen to even holy people who are tempted by too much money in easy reach? Mind-boggling!

As for ageing and suffering its effects, I think it is frightening but it is also natural. So, it is naturally frightening. Haha.. Can't be helped. What will be will be, right?

AK71 said...

More and more people like AIMS AMP Capital Industrial REIT now. Kim Eng published this today (4 July):

Why are we highlighting this stock? We recently met up with Management to find out more about the trust, in view that the counter has risen by 29.6% YTD and offer an attractive DPU yield of ~9% (one of the highest amongst Industrial REITs). It presently has 25 properties valued at SGD914.5m as of 31 Mar 2012. AAREIT is also redeveloping 20 Gul Way that will quadruple its annual rental income and triple its gross floor area on that property when fully completed in Dec 2013.

 AAREIT enjoys high portfolio occupancy of 99.2% with an average security deposit of approx. 8.1 months per property. Since 2011, it has divested several low-yield properties such as 23 Changi South, Asahi Ohmiya Warehouse, and 31 Admirality Road.

 It also has six properties, apart from 20 Gul Way, whose plot ratio utilisation is below 60%, thus making them potential candidates for redevelopment. AAREIT is presently in a sweet spot with its exposure in the logistics and multi-factory space (price index rose by 31.6% and 25.4% YoY in 1Q12, respectively).

INVS 2.0 said...

Hi Ak71,

I also notice that Sabana has been rising fast and soon it could spill over its NAV of $1.04. Should I sell a part of it upon exceeding its NAV?

AK71 said...

Hi INVS 2.0,

That would be your call, of course. There are many REITs which are trading at a premium to their NAVs. ;)

Howyuan said...

Lol AK, don't misunderstand me.

I am glad you return to blogging after the "sabbatical" Really glad such that i can sleep soundly at night now.

:)

AK71 said...

Hi Howyuan,

I am still keeping the sabbatical card on my body. I like the idea of blogging while on a sabbatical from blogging now. So, if you don't hear from me for a few weeks in a row, don't be alarmed. ;)

JCK said...

Walau
AIMS is $1.235 now....
what do the charts say?

Divest a bit out till DPU announcement?

Sell the news?

Decision, decisions

AK71 said...

Hi JCK,

The trading volume for AIMS AMP Capital Industrial REIT is so low that TA is not very useful.

Personally, I have a portfolio of core investments for income which I do not trade. What I bought for trading, I have already divested for capital gains.

Decision is yours. :)

INVS 2.0 said...

Hi Ak71,

Looking at AIMS now, I guess that I have to wait until the next ex-date is over before looking at a fall in price. :/

AK71 said...

Hi INVS 2.0,

There is a widespread assumption that unit price would fall upon XD but I have seen prices continuing to climb after XD. So, let's see what happens the next time the REIT goes XD. ;)

JCK said...

When will AIMS and Sabana report 2 Qtr results?

The way the stock prices are rocketing, you think someone is in the know that them results are something to look forth to!

AK71 said...

Hi JCK,

Should be sometime this month. :)

I wouldn't say their prices are rocketing. It is more like a steady climb upwards.

There is only one reason why prices are going up: there is more demand than supply. ;)

My portfolio is in a strong position and the way things are going, it could get stronger as money continues to search for places to go where it would be treated better.

Kim said...

Hi AK
You have any comments on the going to be listed mega IPO-IHH?
cko

AK71 said...

Hi Kim,

I heard from some that they expect the IPO to do very well given the leanings towards healthcare stocks these days.

Personally, I have not been interested in IPOs in many years. So, I am giving this one a miss as well. :)

JCK said...

Results are out. DPU down to 2.5 cents....

Key highlights for 1Q FY2013:
• Stable Distribution Per Unit (DPU) performance: 2.50 cents per unit for the quarter
• 7.9 percent increase in the amount available for distribution in 1Q FY2013
compared the previous quarter, 4Q FY2012.
• Conservative aggregate leverage of 29.7 percent (maintained gearing at around 30
percent for 11 consecutive quarters)
• Eighteen percent of lettable area leased at rates between 9.5 percent higher than
previous rental rates
• Secured 55 percent of underlying leases at 27 Penjuru Lane to FY2016 and FY2018
at a higher weighted average rental of 7.5 percent
• Delivered a strong yield of 7.61 percent for the quarter
• Completed sale of 31 Admiralty Road on 11 May 2012, 8.9 percent above book
value.

AK71 said...

Hi JCK,

You are working faster than me. Haha..

The lower DPU is expected. Some readers might remember that I said the last quarter's DPU should not be taken to be the norm.

JCK said...

AK

Yes
You mention 4QTR DPU tend to be higher.....Thanks

AK71 said...

Hi JCK,

Yup, you remember too. :)

Well, the REIT's unit price is holding up nicely at $1.30 even so. There is support from Mr. Market, at least for now.

CC said...

Hi,

Newbie here.
I have just rec'd notification for participation in DRP over cash payment for dividend for AIMS.
Do you think it is worth it (@$1.2421) or just I get cash?
Pls advise.

AK71 said...

Hi newbie,

Personally, I won't be taking part as I would like to buy more units in the REIT at possibly lower prices (if they should present themselves).

If you feel that $1.24 is a good price to be buying more units of the REIT at, then taking part is a good idea since you would be saving on the brokerage fees.

AK71 said...

AIMS AMP Capital Industrial REIT (AA Reit) on Friday said it will invest some S$41.7 million to redevelop its two three-storey detached industrial buildings on 30 and 32 Tuas West Road into a five-storey ramp-up warehouse facility.

Upon completion, the asset is expected to be valued at S$60.7 million, over four times its current value of S$14.1 million.

The redevelopment will also nearly double the gross floor area to about 287,866 square feet from 159,717 square feet, and increase the plot ratio from 1.15 to 2.07.

The redevelopment will commence in Q3 FY2016 and is targeted for completion in Q1 FY2018.

Following its completion, mainboard-listed logistics group CWT Limited will have staggered master leases on the warehouse with lease terms varying between 32 months to four years and two months for the different floors and with an annual rent escalation.

According to AA Reit's statement, annual rental income will increase to S$4.15 million (upon completion) from S$0.82 million, with the net yield on cost of this redevelopment estimated to be around 7.2 per cent.

"Property income is expected to be reflected in the Q2 FY2018 quarter," said AA Reit.


Source:
http://www.businesstimes.com.sg//companies-markets/aa-reit-awards-cwts-indeco-redevelopment-project-for-warehouse

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