AIMS AMP Capital Industrial REIT: The rights' value.

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.