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AIMS APAC REIT investment is larger now.

Friday, May 8, 2020

When I blogged about AIMS APAC REIT (AA REIT), formerly AIMS AMP Capital Industrial REIT, last month in April, I said:

"I have not done anything to my investment in AIMS APAC REIT for many years."

Well, I can't say that now because I just added to my investment in AA REIT.

I spent a few hours in the last few days reading, crunching some numbers and looking at the chart before deciding to buy some.

The dust seems to have settled for AA REIT at least for now.

Volatility has reduced tremendously and the unit price seems to have found a floor at about $1.15 a unit.

Looking at the chart, the rising 20 days moving average (20d MA) provides immediate support at $1.14 a unit.

However, the 50 days moving average (50d MA) is still declining and is currently at about $1.16 a unit.

The 50d MA has been providing resistance which has kept a lid on the unit price.

It is the proverbial tug of war between the bulls and the bears.

One side is unwilling to pay a higher price while the other side is unwilling to sell at a lower price.

The result is a reduction in price volatility and we see some kind of an equilibrium or stalemate as neither party is able to claim victory.

The rising 20d MA and the declining 50d MA are just about to form a bullish crossover, a golden cross, which the textbooks would say is a bullish signal.

The way things look now, the golden cross might happen in the next two or three sessions but, of course, if AA REIT's unit price suddenly plunges, it might not happen.

Of course, I always say there is no certainty in such things, only probability.

I am inclined to think that, at the moment, the only certainty we have is that things are looking relatively more settled now.

Any unwinding of such a situation could see unit price move either way and sometimes quite violently too.

Which direction?

Your guess is as good as mine.

Now, a bit of FA to provide some padding for TA is in order.

At $1.15 a unit and a DPU of 10 cents, we are looking at a distribution yield of about 8.7% which is a big increase over a distribution yield of about 6.9% when AA REIT was trading at about $1.45 a unit before the crash caused by the COVID-19 crisis.

The distribution yield looks relatively attractive but how realistic is it?

I always say that AA REIT is one of the better run industrial properties REITs in Singapore and I still think it is the case.

Of course, no matter how well run a business is, if it is up against an insurmountable external crisis, it is still toast which was why I kept saying it was better to err on the side of caution and wait for the dust to settle before deciding whether to buy more.

Very early into the crisis when the air was very dusty and the visibility was very poor, a friend decided to buy shares of SIA when it fell to $8 a share because he thought the blue chip was already very cheap at that price.

That blue chip is now a blue black chip.

Together with Temasek Holdings, my friend is performing National Service as he chips in to save the blue chip.

He is coughing (probably because of all the dust he inhaled) up more money to keep SIA alive while he has to live with the very real possibility of getting zero income from the investment for the next many years.

Anyway, back to AA REIT.

With gearing level at 35% and an interest cover ratio of more than 5x, AA REIT will probably be able to weather this storm pretty well now that we have a better idea how the COVID-19 situation might evolve and also how we could keep it better under control until a safe and effective vaccine becomes available to the world.

Of course, to be sure, there is always the possibility things could go awry.

In my blog on my largest investments in REITs last month, I said that if the crisis were to drag on for much longer, then, we could see tenants defaulting on rents.

For sure, it is possible that we could see a 10% or even a 20% reduction in AA REIT's income if the bad situation the world is in now were to worsen.

So, trading at $1.15 a unit which is about a 20% reduction from $1.45 a unit before the crash shows that Mr. Market is cognizant of the risks AA REIT must face.

Talking about this has a mildly speculative flavor, of course, but I remind myself not to be overly optimistic thinking that 8.7% yield is a definite thing as I could be setting myself up for disappointment.

We should be prepared for the possibility of bad news from AA REIT when they release results and maybe provide guidance next week.

Don't throw in everything including the kitchen sink.

I don't know about you but I need my sink in the kitchen.

While we are on the subject of speculation, it is also interesting to note that ESR Cayman and ESR HK have both been increasing their investments in AA REIT.

Their most recent purchase happened earlier this year in March and that was worth more than $2 million, if I remember correctly.

Of course, there has been talk about ESR harboring thoughts of a takeover of AA REIT for some time now.

Although I hope it isn't the case and it doesn't happen, it is a definite possibility.

If you are interested in this possibility, I blogged about it initially in 2018:

2Q 2018 passive income from S-REITs.

At that time, DBS said AA REIT "could be a target for takeover and suggested a target price of $1.55 to $1.65 per unit."

More recently, there were articles in The Business Times (November 2019):

ESR Cayman Ltd (ESR) acquired 26,827,400 units in AIMS APAC Reit (AA Reit) for a consideration of S$37,290,086 at S$1.39 per unit.

and also The EDGE (December 2019):

3 potential S-REIT mergers to watch out for.

Previously, when AA REIT's unit price was averaging $1.45 a unit which was a premium to its NAV, a takeover might have been seen as too demanding or too pricey.

With unit price now at $1.15 a unit which is a discount to its NAV, a takeover is probably more palatable and also more feasible.

To me, ESR accumulating units at $1.30+ a unit continually and in pretty large chunks up until middle of March this year tells me what ESR was thinking about AA REIT as a value for money investment at that price level.

What will their next move be?

You tell me.

Yes, I know.

Bad AK! Bad AK!

I will stop here.

Time for me to move from this world of imagination to another world of imagination.

Till my next blog, be socially responsible and do the right things.

We are #SGUnited.

You might be interested in the following video on AA REIT's portfolio of properties:

Related post:
Largest REIT investments updated.


jo said...

Dear AK

Did you nibble or did u bite off a big piece of AA =P?

Qiongster said...

Hi AK,
I believe this is a very strategic and shrewd move especially when their Q4 2020 results will be released on next Tues. Usually their Q4 dividends have the highest quantum but that cannot be guaranteed for this round. I actually just placed a 1.13 buy order for next Mon to add on to my existing investments in Aims Apac Reit before I read this valuable post from Master AK that affirms my conviction. In past weeks, I bought Mapletree Industrial Trust and Frasers Logistics & Commercial Trust one day before their results announcement and gained 5 to 10% returns in one day. Is a hattrick coming? Nobody knows how Mr Market behaves but I hope so.


AK71 said...

Hi jo,

I want to answer that very carefully because I have been warned of the (unintended) effects that talking to myself can have sometimes.

A friend blamed me for the strength of IREIT Global's meteoric recovery in its unit price, for example.

He said it was because I said in my blog dated 4 April 2020 the following:

"In fact, I nibbled so much that together the nibbles might be considered a gobble."

Even though I think I am innocent, I probably want to be careful here.

So, all I will say is that I have yet to deploy my war chests and I just used some money from my float today. ;)

AK71 said...

Hi Qiongster,

I don't know if it is a shrewd move or not but I know I am acting according to plan.

Having said that, I hope you are right.

I won't say "no" to a 5% to 10% gain in a single day, of course.

Not I say one.

You say one hor. ;p

Your comment has given me the confidence to buy more on Monday! ;p

SgFire said...

Hi Ak

I hope you arent the innocent one in ireit case but your friend can board the aims boat in a big way next weekl

AK71 said...

Hi SgFire,

I am innocent.


Why don't people believe me?


laurence said...

Did you nibble or did u bite off a big piece of AA =P?

More likely, AK loaded his Antonov cargo plane to the brim.
While standing by a ULCC Supertanker at the harbour. ;)

AK71 said...

Hi Laurence,

In the big, big world of the stock market, what I have is at best a sampan. ;)

raf said...

Hi AK, Thanks for some good insights into AA Reit. You are an allrounder, covering every angle

laurence said...

Wow, AA Reit rocketed up today as expected after AK the Oracle spoke to himself!!!

AK71 said...

Hi raf,

To be honest, I don't know if they are good insights or not.

I am just talking to myself as usual, you know. ;p

AK71 said...

Hi Laurence,

Did it?

I have not looked at the stock market yet this morning.

Was running the Hell Pit event in Neverwinter and talking to my mom on the phone after that.

Will go take a look after this. :)

Siew Mun said...

AA DPU is 0.02. Retained 0.004 for cashflow.

AK71 said...

Hi Siew Mun,

Thanks for letting me know.

That's not too bad. :)

AK71 said...

AA REIT FY2020 Results Presentation dated 12 May 2020.

SgFire said...

Another good cashflow for Ak. On average most reits even mapletree ind is holding some percentage of dividends for cash flow purpose.

RayNg said...

The DPU has consistently drop since FY16 to FY19 from 11.35c to 10.25, or 9.7% reduction.

Are you concern or caution optimistic?

AK71 said...

Hi SgFire,

AA REIT has been a good investment for income for me over the years.

If nothing disastrous happens, the REIT should continue to be a good income generator. :)

AK71 said...

Hi RayNg,

My reply to your comment became so long that I decided to flesh it out a bit more and publish it as a blog instead.

AIMS APAC REIT FY2020 results.

csky said...

Hi AK,

Do you mind sharing how you come up with the 10-20% possible reduction in AA's income due to covid. In what kind of scenario might there be as much as 50% reduction?

Thank you!

AK71 said...

Hi csky,

I looked at the top 10 contributors to AA REIT's income and made an assumption that a couple of tenants in the most stressed out sectors in the economy might ask for relief or they could even default.

It was just something that I thought of as a reasonable probability.

A 50% reduction in rental income?

Then, we are probably in an economic depression.

csky said...

Thank you AK.

How would an economic depression look like compared to now? I mean seems to be the retail, F&B and travel industry are already in a depression of sorts? Saving grace is that other parts of the economy, esp IT, is still holding up. But when will the dominos fall on these IT companies if the affected industries that they service cannot recover. If no vaccine after 2 years, will we surely be in a depression?

Clearly, I am quite a pessimist :/ Hopefully you can help me see more light than I do now :P Thank you!

AK71 said...

Hi csky,

There are good reasons why Warren Buffett has not bought much in this stock market crash.

I agree that unless we have a safe and effective vaccine for COVID-19 widely available, life will not go back to what it was before.

The economy will not recover to what it was before.

The stock market is being supported by the massive injections of liquidity by the central banks and not because the economic fundamentals are strong.

Let us hope that the crisis does not drag on for too long.

Buffett thinks it is going to get worse.

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