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AIMS AMP Capital Industrial REIT: The rights' value.

Tuesday, February 25, 2014

With AIMS AMP Capital Industrial REIT's 7 for 40 rights issue on the horizon, suddenly, I feel nostalgic. This is a REIT which I have been invested for many years.

Looking back, my very first blog post on the REIT was on 31 Dec 2009. I had only been blogging for a few days back then.

At the time, the REIT was trading at 20.5c a unit ($1.025 post consolidation). It offered a distribution yield of about 10% and I said, "I bought a large chunk of MI-REIT at 20.5c after the recapitalisation exercise. At that price, it gives a yield of about 10%. It's trading at about 30% below NAV. It has the lowest gearing amongst Singapore industrial REITs. For anyone looking for high yield at a bargain, this is a BUY even at 21.5c."

I kept on accumulating units in the REIT and when it had a 7 for 20 rights issue in August 2010, I took part enthusiastically. After all, my calculation then showed that, on an annualised basis, the rights units were going to enjoy a yield of 13.42%. The rights were offered to unit holders at 15.5c a unit (77.5c post consolidation).

Of course, we should know the value of our investments. Otherwise, we won't know if it is worth buying more or not. On 11 December 2010, I did a valuation exercise for the REIT and decided that the fair value was 25c a unit ($1.25 post consolidation). Totally subjective, I am sure.

That meant that, by my reckoning, even at 24.5c a unit, it would still have been a fairly good buy. So, when Mr. Market went into a depression later on and offered to sell units of the REIT at lower prices, it was only natural that I bought more.

The value of the REIT had remained the same. So, a lower price meant that it had become cheaper.

Specifically, I bought more units from August to December 2011 when such a depression took place. By then, the REIT had transformed into a stronger entity and there was no reason for it to trade at lower prices but it did.

On 14 December 2011, the last time I added to my long position in the REIT, I paid 93.5c a unit which was just a little shy of very depressed prices last seen in 2009. That worked out to be just 18.7c a unit, pre consolidation!

It didn't take much to know that buying the REIT in December 2011 was a better deal than buying it during the lows of 2009. Why? Pay almost the same price for a financially stronger REIT today than for a weaker one 2 years ago? Felt like a sensible thing to do.

The future of the REIT was also very promising as they embarked on a redevelopment program and I was able to conclude that by early 2014, two years on, the expectation was for a positive DPU impact, everything else remaining equal. To anyone investing for income, the REIT was, quite simply, a buy and I said to accumulate on weakness.

Regular readers might remember that I said I am not averse to trading around my long positions. I sold some of my investment in AIMS AMP Capital Industrial REIT in the following year when its unit price rose but I retained most of my investment in the REIT as part of my core investments for passive income. With past distribution yields on cost ranging from 10.18% to 13.42%, I think that my investment in the REIT has not done too badly.

The current rights units to be issued at $1.08 a unit will probably be the most expensive units of AIMS AMP Capital Industrial REIT's I have ever bought. At $1.08, I am expecting a prospective distribution yield of 8.66%. A very rough back of the envelope calculation shows that this could increase to 9.26% (taking into consideration income from Optus Centre, the redevelopment of a property in Defu as well as savings in financial expenses).

The prospective distribution yields of 8.66% to 9.26% for the rights units are rather much lower than the distribution yield of 13.42% for rights units offered in its 2010 rights issue. So, this rights issue seems relatively less attractive.

However, if we believe in the management and if we believe that a prospective distribution yield of 8.66% to 9.26% is sufficiently attractive, we should take up our entitlement and apply for more excess rights. Otherwise, we could think of selling our rights entitlement.

For anyone who is thinking of buying the nil-paid rights, although the theoretical ex-rights price (TERP) was calculated to be $1.365 which meant that the fair value for nil-paid rights should be 28.5c a unit, to get the same pre rights distribution yield of some 7.77%, the highest price we should pay for nil-paid rights should be around 12c per unit. Of course, the lower the better but not higher than 12c per unit.

Nil-paid rights start trading 2 days from now.

Know the value and we will know how much we should be paying. Good luck to us all.

Related posts:
1. AIMS AMP Capital Industrial REIT (MI-REIT).
2. AIMS AMP Capital Industrial REIT: Rights issue.
3. AIMS AMP Capital Industrial REIT: Revised DPU and fair value.
4. AIMS AMP Capital Industrial REIT: 7 for 40 rights issue.
5. AIMS AMP Capital Industrial REIT: Optus Centre.

56 comments:

ted said...

Still yet to receive CDP package about subscribing to rights. Everyone else received yet?

Which means I totally no idea how to buy the nil-paid rights if I want to (or if it's a good deal).

Is nil-paid rights trading just a different ticker symbol on SGX? If yes, please share the symbol if anyone knows. Thanks.

AK71 said...

Hi Ted,

This was what a fellow blogger posted on FB:

"Alerted by a comment that AIMS rights has two counters listed on SGX now. One is AIMS R (TZ7R) and the other is AIMS R25 (TZ8R). I think the first one has a board lot size of 1000 shares per lot while the second has a board lot size of 25 shares per lot. Good enough to round off any odd lots that you might get from the whole exercise." Blog Master of Bully the Bear.

AK71 said...

From the same blogger:

"OIS = Offer Information Statement. That's what is going to be mailed to share holders of company undergoing a rights or warrants issue."

It is on the way, I am sure. :)

Capricon said...

AK,
Thanks for sharing your journey with AIM AMP. Hope you can clear some doubts as I do not know much history of AIM AMP.
1. Obviously the company did not do well and hence recapitalization exercise especially with new investor which we yet to know how they perform, what actually gives you the confidence to put money in them ?

2. What is the methodology you used to do the valuation of the company as you mentioned in 2011 ?

Appreciate your time to share, thanks.

AK71 said...

Hi Capricon,

AIMS AMP Capital Industrial REIT was formerly known as MI-REIT. During its MI-REIT days, its CEO was Chris Calvert, the recently departed CEO of Cambridge Industrial Trust.

Chris made a few mistakes including entering into an agreement to purchase a building under construction but not putting in the financing in place. When he left MI-REIT to join Cambridge Industrial Trust, he left a mess. This was why I had no confidence in him for a very long time.

The re-capitalisation offer led by Mr. George Wang was really the only way out for MI-REIT. It would lead to heavy dilution of existing unit holders but the REIT would emerge financially much stronger. So, the choice was clear for me.

Many people were upset with how much money George Wang and friends made from the rescue of MI-REIT but, hey, white knights are never truly white. If they didn't make money, why should they do it?

I remember 2nd Chance's Mr. Salleh was a big unit holder too and he was against George Wang and friends bailing out the REIT but he couldn't raise the kind of money needed to re-capitalise MI-REIT either. It was that big a mess.

Reading George Wang's achievements and learning what AIMS and AMP Capital are plus the fact that the REIT's numbers were strong again after the recap, it was a no-brainer that it was an opportunity to invest in something good at the end of it. :)

As for your second question, see related post no. 3. :)

flyingchicken said...

I've not receive the CDP letter as well. I wonder if I should apply the rights from own calculation instead of waiting for the letter.

AK71 said...

Hi flyingchicken,

No need to rush. Wait for the OIS. Plenty of time. We have until 13 March. :)

Paul Chua said...

Based on the announcement, dispatch of OIS should be on 27 Feb.

BP said...

How do u calculate 12c to get distribution yield of 7.77%?

AK71 said...

Hi BP,

The REIT had a DPU of about 11c per annum and I remember it was trading at $1.415 a unit when the rights issue was announced. That gave me a yield of 7.77%.

Diluted, post rights, DPU should be around 9.35c. So, to get a similar yield, I wouldn't pay more than 12c for the nil-paid rights because my effective cost would be $1.20 (a bit more including fees). Oops, this gives me a 7.79% yield. I tipu a bit. ;p

Recruit Ong said...

i did a quick calculation & to get pre rights yield of 7.77%, the nil paid rights shld not be more than 11.5c, okay lah quite close to 12c. :)

BP said...

Actually I was interested in how did you calculate the dpu dilution of 15%.

AK71 said...

Hi BP,

I think you missed my reply in an earlier blog post on the rights issue. Here you go:
15% dilution.

:)

AhJohn said...

"Nil-paid rights start trading 2 days from now." Hi, AK, a bit confused. We can wait to pay for rights issue by 13 Mar, but 2 days later we can buy nil paid rights, how come got nil paid rights before payment deadline?

AK71 said...

Hi Ah John,

From tomorrow till 7 March, people who do not wish to pay for their rights units will get a chance to sell them. Since, these are unpaid rights units, we call them "nil-paid".

Anyone who buys such nil paid rights will have to pay $1.08 a unit as if they have been allotted the rights units by 13 March.

flyingchicken said...

Hi guys,

To check how many rights you are entitled, you can login to your CDP and check 'Movement(Current)' under the 'Holdings/Movements' tab.

There, you will find the entry PROVISIONAL RTS for the number of rights entitlement.

AhJohn said...

Thanks! I see now. Just same as stock trading, right?
But use different counter: T27R, T28R
If we want to round up to lot size, should we put exact number or put whatever and only the odd number will be filled first?

AhJohn said...

Btw, another term "excess rights", is it similar with IPO, that we apply and pay directly at ATM, then the money will be returned if fail to allocate any excess rights, right? Appreciate your enlightenment.

AK71 said...

Hi Ah John,

If you want to round up odd lots, just apply for excess rights to round up. You will get priority for rounding up odd lots. Don't have to buy nil-paid rights in the open market.

Yes, if you apply for more excess rights than is necessary to round up odd lots, they will make a refund for whatever excess rights you applied for but failed to get.

ABC said...

Hi AK,

The share price has been falling steadily since it traded XR. Could it partly be driven by shareholders selling (some of) their current holdings with the intent of buying back the shares as a cheaper price through the rights subscription? Would that be a sound strategy?

Thanks for your sharing your views.

AK71 said...

Hi ABC,

If this should be the case, we could see 15% of the shares in issue being sold. ;)

I don't know if this is what is happening but I won't be surprised to learn that some are doing this. :)

wee loong said...

Hi AK,

Would you care to explain the difference between AIMSAMPI Reit R and AIMSAMPI Reit R25? I suppose these are the two counters for shareholders and potential buyers to buy/sell nil-paid rights in odd numbers.

Just wondering why is it trading at such a low price of $0.245? Wouldn't that be only $245 for a lot compared to the current trading price of the actual counter which would cost roughly $1340 for a single lot?


Thanks!

AK71 said...

Hi Wee Loong,

You supposed correctly.

Remember, that you are buying nil-paid rights here. 24.5c a unit is what you pay the seller of the nil-paid rights, you have yet to pay $1.08 per unit to AIMS AMP Capital Industrial REIT. This, you must do by 13 March.

wee loong said...

Hi AK,

Thanks for the prompt reply. Appreciate that.

If i were to purchase the nil paid rights at $0.245, how will I be able to pay the outstanding amount of $1.08 to Aims Amp Reit? Will it be through ATM or will i receive something that is similar to OIS?

AK71 said...

Hi Wee Loong,

Yes, if you were to buy nil paid rights from the open market, you will receive a package from the CDP in due course with instructions to make payment by 13 March at participating banks' ATMs. :)

wee loong said...

Hi AK,

Thank you for sharing the info :)


AK71 said...

Hi Wee Loong,

You are welcome. All the best. :)

Tribevirus said...

Hi AK,

Would it be better for to buy the main stock of AIMS at the current price of $1.325 compared to the current price of nil rights at 23.5cents for a new investor of AIMS?

Or alternatively, wait for the price to be adjusted after the rights issue and then buy the stock. Would appreciate your comments, thanks!

AK71 said...

Hi Tribevirus,

I believe Mr. Market is already pricing in the dilution from the rights issue. Whether there will be more downward pressure on price, whether there will be more adjustments in future, I don't think anyone knows.

What is more important, I believe, is that you have a value in mind. Once you have this in mind, you will know what to do.

So, if you value the REIT at $1.365 per unit which happens to be the TERP, then, why not buy some now?

If you value the REIT at $1.20 per unit, then, logically, you wouldn't be interested in prices higher than that.

You decide. :)

Dividend Warrior said...

Hi AK,

Believe it or not, this is the first time I am subscribing to rights. LOL! >__<"

So please pardon my noobishness.

I am vested in AIMS. Can I subscribe to my entitled rights and apply for excess rights right now at the ATM? Or must I wait until 7th of March?

According to my understanding from the timetable, I can only press at the ATM between 7th of March to 13th of March. Am I right or wrong?

AK71 said...

Hi DW,

You know something? I don't know. I always wait until the last 2 or 3 days before I make payment. I have never thought of finding out if I could pay earlier. -.-"

After all, I could end up buying some nil-paid rights if Mr. Market should decide to sell them cheaply. So, waiting makes sense. :)

Dividend Warrior said...

Hi AK,

Thanks for reply.
I shall follow your way then. :)

AK71 said...

Hi DW,

No point in paying up too early, right? :)

David & Thi said...

Anyone picking up AIM REIT in this market weakness as it has now trade below the TERP price.

AK71 said...

Hi Yee,

Remember that the TERP is really theoretical. Fundamentally, it has little value. :)

So, whether to buy or not, it is more important to ask if you are getting the value you want from the REIT at the current price. ;)

Cory said...

With the current price at 1.32. If we do some mental math exercise, are we better off selling before the rights entitlements and then buying the mother shares now compared to going through all the hassles of rights.

AK71 said...

Hi Cory,

How sure you are that things won't change by the 7th? ;)

I certainly do not know what Mr. Market will do by then.

If we want to gain from arbitrage, the difference between the mother shares and the nil paid rights must be big enough at any one point in time.

Of course, if you want to avoid the trouble of going to an ATM by the 13th, then, that is a different thing altogether. :)

Jash Chua said...

Hi AK,

I got 3 lots bought at $1.57 >.<, entitled for 0.525 lots, excess 0.425 lots... Can I apply for 2.45 excess lots instead? Or I buy 3 lots after the rights issue?

Apologized for the noob question...

AK71 said...

Hi Jash,

You have 3 lots. So, you are allotted 525 rights.

You could apply for 475 to round up to one lot plus as many thousands as you like on top of that. ;)

Jash Chua said...

If i apply the 3 lots from the right exercise, i can average my price to around $1.33(for 6 lots). Feasible to do so? =.=

SOLIDCORE said...

Hi AK,

I've completed my SRS Rights purchase today.

Just to share my experience and for those who have used SRS for their stocks as well.

My SRS is under XXXX bank and I've received a letter saying that there is a Rights issue.

In the letter, they will indicate the number of allotted rights as well as a blank space for me to write down the number of excess rights which I may wish to purchase.

After that, I went to one of the XXXX bank branches and got one of their relationship manager to fax my form to the SRS branch.

That's it!

For those who can't find the time to do to the bank, you may:
1. Fax it in yourself.
2. Email it to them and call the SRS hotline to inform them of the emailed reply.

You'll have to ensure that you have enough money in your SRS for the rights and excess rights too.

Btw, for those who wish to sell their rights, you'll have to call your broker and get them to sell it off for you.

A pretty simple task! and I was worried all this time for nothing.... :)

AK71 said...

Hi Jash,

You could apply for any number of excess rights you want but the number of excess rights you need to round off the odd lot will have priority. Whether you get more above that number is harder to say but you can certainly give it a try. :)

AK71 said...

Hi Solidcore,

Thanks for sharing.

"You'll have to ensure that you have enough money in your SRS for the rights and excess rights too"

Very important!

This is why people who use their SRS funds to invest in REITs should make sure they are never fully invested at any one time. :)

Kevin Tan said...

Rights & excess purchased!!

AK71 said...

Hi Kevin,

I am planning to do it this evening. :)

Kevin Tan said...

Hi AK, I brought this shares on the high. Hoping to average down with this rights purchase.

Strictly for long term investment.

AK71 said...

Hi Kevin,

If you are investing for income, I think $1.08 per unit is a pretty good price with an estimated DPU of almost 10c a year. Of course, the REIT will have a stronger balance sheet, post rights issue. :)

Mark Wong said...

Hi AK71
The REIT is trading at $1.315 now. Will you consider this as a good price to enter? I have not yet holding any of the REIT at this moment.

AK71 said...

Hi Mark,

Look out for my next blog post which is in reply to your comment. :)

Mummy of J said...

hi AK

AIMS has a Distribution Reinvestment Plan. I have been collecting the dividend payout as cash all these whiles. but i just wonder is it worth it to participate in the future DRP? But the price has been rising steadily so i am not sure. I have 10 lots purchased at $1.20. I have no use for the cash dividend and normally just save it (hehe coz not a lot la). Appreciate your advice.

Thanks.

AK71 said...

Hi Mummy of J,

You have to know why you invested in AIMS AMP Capital Industrial REIT. If your motivation was for income, then, you should take the distribution in cash.

If you don't need the cash, then, ask yourself if buying at the current price is good value for money? If you think it is, then, taking the distribution in scrip is a good idea since you will get a small discount usually and avoid paying transactional fees too. :)

Mummy of J said...

Ok i shall just save the cash dividend in my "war chest" then! Thanks!

MJ K said...

Hi AK,happen to come across this post. What do you think about AIMS at the current price in the market?

AK71 said...

Hi MJ K,

I think that AIMS AMP Capital Industrial REIT will probably continue to do well.

They also have the potential to do better with many of their properties' plot ratio still yet to be fully utilised.

With the management having maxed out plot ratios for some properties in the recent past, I believe that this is a course they would probably continue to pursue.

However, it will take time to happen, especially when conditions are softer now.

The stock is probably fairly priced now. :)

MJ K said...

Thanks AK for your view. Did not enter when it was 1.3 at the time of rights issue now it's 1.46 :)

AK71 said...

Hi MJ K,

There is no accounting for Mr. Market's behaviour although I have been rather impressed by the REIT's management in their efforts to build value for unit holders. :)

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