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AIMS AMP Capital Industrial REIT: Nibbling with GW.

Sunday, September 1, 2013

It seems that AK and GW had the same idea as to when to buy more of AIMS AMP Capital Industrial REIT:



Buying at $1.36 is buying at a 10% discount to valuation and with a forward distribution yield of some 8%.

Source: here.

GW went on to buy more (107,000 units) the next day on 27 August at almost $1.40 a unit. See: here.


I ask myself when to buy more of a fundamentally sound REIT? At a nice discount to valuation and with an attractive yield seems like a good idea to me. So, if AIMS AMP Capital Industrial REIT were to see its unit price decline another 10%, what to do? What? $1.20 a unit? Easy or tough question? Maybe it is a trick question? I better think harder.

What about a rising risk free rate? Good question. See #3 in the related posts below.

Related posts:
1. REITs: When to buy?
2. Do not love unless it is worth the loving.
3. Saizen REIT: Risk free rate and unit price.

13 comments:

sillyinvestor said...

Hi Ak,

Was looking at various reits like you. Reits exposed to indonesia is the hardest hit now, with lippo mall and first reit retreating about 30% from their peak. The fear is understandable as the will have a double whammy of interest rate hike and currency fall in the near future.

But I find the fall excessive and in my opinion unjustified. Lippo has most of its loans in fixed interest, and is shield from interest rate hike, the earliest loan due in 2014, has effective interest of 4.29& interest rate should not shoot up much as with the earliest timeline, tapering should only start in september.

How about currency fall? Currency has weaken about 10%. From 2012 AR,

A hypothetical 10% strengthening in the exchange rate of
the functional currency $ against the Indonesian Rupiah with
all other variables held constant would have an (adverse)
favourable eff ect on total return before tax of – – (2,680,000)

Hardly a blow to Lippo distribution, but lets be conservative and super kiasu and assume a 10% fall in currency lead to a 10% fall in DPU, at 42cents, the yield is 7.6%. I have not account for the hedging, and high aggressive I have "impair" earnings, so 7.5% seem like a worst case scenario yield for the next 2 years at least.

Of course, if you believe INdonesia will experince a currency crisis like the AFC, then no price is cheap.

btw, AK, I have send you an email on friday, but have not heard of you since, did you receive it??

AK71 said...

Hi Mike,

My own feeling is that Mr. Market has turned excessively pessimistic on various S-REITs. If I weren't vested yet and if I were looking for a decent investment for income, this could be a nice entry point. :)

Against the S$, the Rupiah is even lower than it was back in 2009. However, people are assuming that the S$ will stay strong. I think the S$ will weaken too.

There is slim chance the S$ will stay as strong as it is today with an economy that is so dependent on global trade. A S$ that is too strong will hurt Singapore. So, the relative weakness in the Rupiah is, in my opinion, temporary.

If LMIR's unit price were to fall under 40c, it is quite simply a buy to me. :)

I check my email account once a day at least. I did not receive your email sent on Friday. Did you reply to one of my emails? If you sent a fresh email, sometimes it gets filtered out as spam automatically. Please send again and cc to ak12121971@gmail.com

I don't usually check my gmail account. It is a backup account. So, you have to alert me by writing a comment in my blog if you do. :)

Willie Lim said...

Hi, I understand when the price falls, the yield increases. But just to check, let say I bought at low price but yield is 7%, then 6 mths later the price increase and the yield goes down to 5% per annum... then, will my returns of yield be calculated when i first bought the shares - 7%? or it would be counted based on the current 5%, since I will be reaping the increase in share appreciation also.

sorry but i am just starting out learning from you gurus here.

thanks...

AK71 said...

Hi Willie,

Buying into a REIT is like buying a piece of real estate.

So, if you had bought at $1.00 and the DPU was 7c, the distribution yield would be 7%. If unit price should go up to $1.10, you would still be getting 7c and your investment would have a paper gain of 10c. Of course, the opposite could happen too. Unit price could fall to 90c but you will still get 7c. Ceteris paribus.

You could calculate distribution yield based on your cost in which case 7% will never change. However, to help determine if you should buy or sell, you want to calculate yield based on the prevailing unit price.

If price were to go to $2.00 a unit, is a 7c DPU, a yield of 3.5%, still attractive? If price were to go to $0.50, a yield of 14%, what would you do? Ceteris paribus. ;)

Of course, there are many other things to consider when investing in REITs. I have many blog posts on REITs. Hope they are helpful.

sillyinvestor said...

Hi Willie and AK,

If I may kaypo here a bit, it is important to calculate future yield based on costs. Acquisitions will pump up distribution but need to offset by finance cost, performance fees, acquisition fees, admin fees are usually insignificant. It will be a good practice to breakdown the purchase and calculate the yield and see for yourself if the acquisition ( common feature in reits investing) make business sense for unit holders or simply is use to fatten the managent pockets or a dumping ground for parent company.

Things that could cause yield to drop. Interest rate raise, rental revision downwards. Some of these calculations might be just estimates but unless u have accounted for these. For example, industrial properties might face o these pressures in the near future, so u might need to Acc for these and know how much lease is going to expire at the future and give a estimated impact on distribution.

Haha, hope Ak dun mind I hijacking the comment, and hope Willie u find it useful

AK71 said...

Hi Mike,

Hey, appreciate the comment. You are meticulous, as always. All the points are valid and I am sure Willie will have more questions for you. ;)

Willie Lim said...

Hi AK and Sillypore,

Thanks for your inputs. Actually, in my layman opinion, REITs are functioning some sort like a bond where regular dividends are paid out but only specifically on real estates. Reits are also interests rates sensitive due to its nature. Very intelligent and modern thing, since Reits were just invented about in this decade or so, as compared to bonds.
I'm not surprised if an ETF will to arise soon encompassing all Reits of Singapore. That way, it saves lazy investors trouble since Singapore Reits are in strong correlation to the economy, yet pay more handsome dividends as compared to Nikko STI ETFs or other index related ETFs.

AK71 said...

Hi Willie,

REITs are more real estate than bonds really. I mean when we own bonds, we are lenders. When we own REITs, real estate or equities, we are investors. ;)

Also, REITs have been around for a long time. They are just relatively new in Singapore. :)

INVS 2.0 said...

So you bought some at 1.36.

I saw the huge drop too and wanted to buy. But 1.36 at several lots is still too expensive for someone who is a student. :(

AK71 said...

Hi INVS 2.0,

I have several price levels I marked to buy at:

$1.36, $1.34, $1.32, $1.24 and $1.22.

:)

INVS 2.0 said...

Thanks for the disclosure. :)

AK71 said...

AIMS AMP Capital Industrial REIT Management Limited, the manager of AIMS AMP Capital Industrial REIT (Trust), announced its second quarter results with a significant 29.2% year-on-year increase in distribution to unitholders of $14.5 million for 2Q FY2014.

The manager delivered a distribution per unit (DPU) of 2.75 cents, up 10% from the previous quarter. The DPU of 2.75 cents represents a payout of 99.2% of taxable income available for distribution, in line with the Manager’s distribution policy to pay at least 90% of its taxable income.

The Manager’s Chief Executive Officer, Nick McGrath, said: “This very strong result was driven by the income contribution from Phase Two of 20 Gul Way, and a solid 98% occupancy rate across our portfolio.”

http://www.theedgesingapore.com/the-daily-edge/business/45951-aims-amp-capital-industrial-reits-dpu-up-292.html

AK71 said...

AIMS AMP buys stake in Sydney building. AIMS AMP Capital Industrial Reit has signed a conditional agreement with a Stockland managed fund, Stockland Direct Office Trust No 2, to acquire a 49 per cent indirect stake in Optus Centre for A$184.4 million (S$211.4 million).

This is the first Australian investment for the trust whose portfolio of properties has been Singapore-centric so far.

Optus Centre is an A-Grade business park located at Macquarie Park in Sydney's north. It is fully leased to Optus Administration - a unit of SingTel Optus, the second largest telecommunications company in Australia - for a weighted average lease term of 8.6 years with fixed annual escalation of 3 per cent.

Post acquisition, its Australian assets would make up 18 per cent
of its portfolio.

On a pro forma basis, this acquisition is likely to boost the trust's distribution per unit and distribution yield by 5.7 per cent and 5.6 per cent respectively.

The trust closed 2.5 cents lower at $1.50 yesterday.


Source: OSK-DMG, 26 Nov 2013

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