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AIMS AMP Capital Industrial REIT levels up.

Friday, March 17, 2017

UPDATED JULY 2018

DPU of 2.5c declared for quarter ending June 2018 to be paid on 20 Sep 18.

Refinancing in July 2018, weighted average debt maturity lengthened to 3.1 year, with interest savings of about $0.7 million per annum.

88.1% of interest rate fixed with interest rate swaps and fixed rate notes.

Overall blended funding cost of 3.8%






..........
AIMS AMP Capital Industrial REIT (AA REIT) is probably one of the better run REITs in Singapore, creating value for unit holders in a sustainable manner and their recent action reaffirms my view.





Most REITs are leveraged to some degree. Although leverage could magnify gains, in an environment of lacklustre growth and rising interest rates, too much leverage could spell trouble.


I remember putting forth my concern on rising interest rate to AA REIT's CEO when I was invited to tour some of the REIT's properties. 

I wondered if it was possible to issue longer term bonds to lock in lower interest rates.






Mr. Koh Wee Lih told me that issuing longer term bonds could mean paying a higher coupon which made perfect sense, of course. 

So, if AA REIT should be able to issue bonds without shortening their tenors and enjoy paying lower coupons, what does that tell us?





AIMS AMP Capital Industrial REIT (AA REIT) announced it will be issuing S$50 million Fixed Rate Notes as part of its Medium Term Notes (MTN) Programme.


The 5-year Notes will bear interest at a fixed rate of 3.60 per cent per annum payable semi-annually in arrear, until maturity on 22 March 2022. The Notes are expected to be issued on 22 March 2017.

“The net proceeds from the issue will be used to partially repay the revolving credit facility due in November 2017 which was used to fund ongoing developments. This also enables us to diversify our funding sources and free up more undrawn available facilities for potential further growth.”

This is the fourth time the Manager has used its MTN programme to raise debt. 

AA REIT raised S$100 million with the four-year 4.90 per cent Fixed Rate Notes issue in August 2012 , S$30 million with the seven-year 4.35 per cent Fixed Rate Notes issue in December 2012 and S$50 million with the five-year 3.80 per cent Fixed Notes bond issue in May 2014. 





Mr. Market demands higher returns for junk bonds but accepts lower returns from investment grade bonds. 

I like the direction AA REIT is heading. Good job!





Related post:
A tour of AA REIT's properties.

28 comments:

Kevin said...

Hi Ak,

What will the gearing ratio be after this Medium Term Notes (MTN) Programme? -_-"

AK71 said...

Hi Kevin,

The funds will be used to partially repay the revolving credit due later this year. I don't think there will be any big change to gearing.

SkinnyOldMan said...

Hi AK, do we need $250K to buy the notes? Is it available in small amounts, and where can we buy it? Thanks.

AK71 said...

Hi SOM,

I believe this is for accredited investors and not for retail investors.

Sometimes, my banker would call me to ask if I was interested in such offers but I would tell him I don't have the money. ;p

Wong said...

Hi AK,
AA bonds are not investment grade for the simple reason that they are not rated at all, let alone at investment grade.
They are able to pay a lower coupon rate because there is a hugh demand for S$ denominated bonds by Singapore companies with some name recognition in Singapore.

Cheers!
Wong

AK71 said...

Hi Wong,

I am not suggesting that AA REIT's bonds are investment grade.

I am just happy that they are moving in the right direction.

Thanks very much for sharing. Good one. ;)

Kevin said...

Hi Wong,

I thought AA REIT is rated investment grade BBB- by S&P? Do correct me if i am wrong. -_-"

AK71 said...

Hi Kevin,

You are very on the ball! You are right, of course. AA REIT was rated in 2016. I wonder if they would be rated in 2017. With the new 45% cap on gearing (credit rating or not), it seems that more REITs are moving away from getting rated. I wonder if Wong caught something in the wind.

"April 4, 2016--Standard & Poor's Ratings Services said today that it had affirmed its 'BBB-' long-term corporate credit rating on Singapore-based AIMS AMP Capital Industrial REIT (AAREIT). The outlook is stable. We also affirmed our 'axA-' long-term ASEAN regional scale rating on the REIT."

EK said...

Hi AK,

Can you talk to yourself somemore to elaborate on why you think this is a good move. Trying to understand your mental and thinking. Isn't issuing MTN increasing the debt/gearing?

AK71 said...

Hi EK,

If the REIT can refinance at a lower cost (i.e. interest rate), it is a good thing.

Having said that, having a demand for its MTN reduces the REIT's reliance on banks for its funding needs. That is also a good thing.

Kevin said...

Hi AK,

AA REIT distribution coming in this coming Thursday and POSB will give you a triple A rating after CDP performs the crediting. :P

Wong said...

Hi AK and Kevin,
Thanks for checking. I couldn't find any info that the bonds are rated. It is very rare that bonds from Reit are rated, even
the big one.. You can check those from Ascendas and Keppel. Also issuer rating is
different from bond rating. Typically issue is rated lower than the issuer.
Just check some of the bank bonds. BBB- from s&p is considered lowest of investment grade.
So if AA bond is rated, it is unlikely to be investment grade.

I guess it costs to get bonds rated, since demand for S$ bonds is high, there is no need to.
It doesn't mean that unrated bonds are risky.

AK71 said...

Hi Kevin,

I have been buying. So, it is a much needed boost. ;p

AK71 said...

Hi Wong,

Thanks so much for the clarification. :)

K said...

Hello,

Why is the counter getting punished this morning?

AK71 said...

Hi K,

AA REIT punished this morning? Really? How was it punished?

K said...

Share price drop by 4% lor.

AK71 said...

Hi K,

Having lived through the GFC when AA REIT's unit price went to under a dollar, a 4% decline is merely a ripple. ;)

Adrian Ong said...

Hi AK,
Will you be adding to your position? In your opinion is the drop justified? i see property income and revenue stable, and the drop in DPU is mainly due to the distribution a year ago from payment from the fire insurance and retaining some of the current quarter distribution?

Adrian Ong said...

Hi AK,
Will you be adding to your position? In your opinion is the drop justified? i see property income and revenue stable, and the drop in DPU is mainly due to the distribution a year ago from payment from the fire insurance and retaining some of the current quarter distribution?

AK71 said...

Hi Adrian,

I won't tell you if I am adding but I just blogged about the REIT's latest results:

AIMS AMP Capital Industrial REIT challenged.

;)

Kevin said...

Hi AK and K,

It is probably just this report that is causing a knee jerk. ;)

http://www.businesstimes.com.sg/government-economy/prices-rentals-of-industrial-space-in-singapore-continue-to-moderate-in-q2

AK71 said...

Hi Kevin,

That could have been a contributory factor. :)

AK71 said...

DPU of 2.5c declared for quarter ending June 2018 to be paid on 20 Sep 18.

Refinancing in July 2018, weighted average debt maturity lengthened to 3.1 year, with interest savings of about $0.7 million per annum.

88.1% of interest rate fixed with interest rate swaps and fixed rate notes.

Overall blended funding cost of 3.8%

Chris Lim said...

To Kevin:
In the event that AA REIT folded, does MTN buyers get paid first over common stock holders?

To Wong:
Taken from investopedia, "When rated, however, these companies have demonstrated both the capacity and capability to meet their debt payment obligations". Is it right for me to read that although BBB- is not fantastic, but AA REIT is still reliable in financial commitment?

To AK:
Quoting you from the article:
"I wondered if it was possible to issue longer term bonds to lock in lower interest rates".
Since a longer term bond gives a higher coupon than shorter term bonds, why would it be able to lock in lower interest rate? How does it work? I assume the 'interest rate' is from bank/financial institution to AA Reit?

Quoting you from the article:
"if AA REIT should be able to issue bonds without shortening their tenors and enjoy paying lower coupons, what does that tell us?"
Does it mean that they have good rating among institutional and common investors?

Quoting EK:
"Isn't issuing MTN increasing the debt/gearing?"
Isn't gearing ratio related to Bank and the borrower, so issuing Notes (bypass bank) does not increase the gearing isn't it?

AK71 said...

Hi Chris,

If you read my blog carefully, it is obvious that it was wishful thinking on my part. ;)

And you have answered your own question. Credit rating. ;)

Chris Lim said...

I am curious about their DPU distribution.
I checked across a few years and they have been paying 100% of their distributable income.
Is this a norm across Industrial REIT?
If not, why wouldn't they want to retain 10%?

AK71 said...

Hi Chris,

You will find the answer here:
AA REIT: A private tour.

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