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Should we invest in AIMS APAC REIT in 2021?

Monday, February 1, 2021

Readers left me a few comments on AIMS APAC REIT (formerly AIMS AMP Capital Industrial REIT) recently and I decided to do a quick blog on one of my largest investments. 

Let us start with my reply to the latest comment: 

"I get palpitations when people ask me if something is safe to invest in. ;p 

"The one place where I would say our money is safe is the CPF which is risk free and volatility free. 

"Having said that, I have been invested in AA REIT for more than 10 years and it has been good to me. 

"You might want to read this and my other blogs on AA REIT for an idea: 

"OK, maybe, this one too: 

AIMS AMP Capital Industrial REIT and free money for AK."

I should have said this earlier but if you are interesed, read Egg's comment in the comments section of this blog: HERE. 

I also posted a couple of replies to another reader's comments on AIMS APAC REIT in another blog. 

See the comments section here for Blur Sotong's comments and my replies: 

For anyone interested in investing in REITs, maybe, read this too: 

Oh, if you are wondering where I got the inspiration for the title of this blog:

Neverwinter for the win!

Sneaky AK!

Bad AK! Bad AK! 

Hopefully, 2021 will be a better year than 2020.

Till the next blog, everybody stay safe!


Verseun said...

Hi AK,

Hope you can talk to yourself on First REIT. From what I see , I notice some areas of concern for the REIT

1) There are huge amounts of "rental rebates" provided by LPKR, these amounts subsidize Silom to a tune of up to 70-80% (based on what Siloam is paying for rental vs what First REIT receives). These rebates artificially boost the dividend rates and also the asset value. So First REIT was bloated to an extent to begin with. The rights issue and lease restructure is the pin popping it.

2) LPKR is essentially using the REIT as a piggy bank of sorts to sell property to. Once through this rights issue, LPKR will continue to sell assets to First REIT creating the need for more rights issues in future. This is ok, but the issue is whether they will use the same trick again inflate the sale price of the assets by providing rental support (which they cant due to cashflow issues now).

3) There is a sort of cross holding structure with OUE, OUE Healthcare, Siloam . Also there has been no clear communication between "sponsor" LPKR and First REIT and they were also blindsided by the recent rights issues and restructure. So its fair to say that shareholders might be blindsided by future moves as well even though they are in the same family.

4) Healthcare REITs are known to be stable (15 years lease) but they are also beholden to the tenant. It is not like a retail REIT where you can kick a non-paying tenant out (furthermore its LPKR). There has been cases in other countries where the REIT actually loaned money and reduced the rental rates of the tenant when they faced issues (more possible now). So the bargaining power lies with the tenant and not the REIT. Sure, the 4%+ rental escalation looks enticing, but at the risk of lower base rent , currency fluctuation and tenant risk.

5) Linked to part 4, there are government regulations regarding safeguarding the tenant of the hospital. There are less regulations safeguarding the landlord. And we can expect rental waivers ,etc, to safeguard the tenant, this puts the DPU in doubt. This is already happening with First REITs Korean tenant, which has missed rental payments for a period of time. First REIT cant do anything about it.

However, there is a price at which the risks can be offset by the possible returns. Heads I win , tails I don't lose so much. But its very hard to determine this. I am not sure even with the rights issue if First REIT is indeed a cheap play.

AK71 said...

HHi Verseun,

I agree with your concerns and I shared why I would be cautious in a couple of blogs too:

1. 4Q 2020 passive income.

2. Sold First REIT.

We also want to note that without the rental subsidy by Lippo, First REIT is similar to Lippo Mall Retail Trust now:

3. LMIR: Gearing ratio and margin of safety.

If I were still invested in LMIR, I would have given their recent rights issue a miss.

To invest in First REIT or LMIR, I would require much higher distribution yields than what Mr. Market is offering now to make the risk more bearable.

Qiongster said...

DBS like to explain AA REIT for AK.

Siew Mun said...

Analyst report😊

Blur Sotong said...

Hi AK,
Just wanted to share this with our AA Reits investors.

Hope AA will not sell themselves lower.

AK71 said...

Hi Qiongster, Siew Mun and Blur Sotong,

Thank you for sharing the news.

DBS says BUY.

Not AK. ;p

Huat ah! :D

Keng said...

Hi AK,

Could you talk to yourself about a likely merger scenario with ESR REIT? Coming hot on the heels of the failed merger bid with Savanna REIT, this merger news raises alarm bells in me.. thank you!


AK71 said...

Hi Keng,

Oh, I believe ESR REIT is eyeing AA REIT.

However, unlike Sabana REIT, ESR does not have a stake in AA REIT's management.

Mr. George Wang who has a substantial stake in AA REIT is unlikely to agree to a sale or a merger unless a very good price is offered. ;)

Siew Mun said...

3 top share holders of AA are Dragon Pacific Asset Mgt 11% ESR Cayman 10% and George Wang 8%. Is ESR Cayman related to ESR Reit?

AK71 said...

Hi Siew Mun,

ESR everything is ESR and they are very big.

It is like those Wuxia stories and the ESR sect is gobbling up smaller sects to take control of the whole Wulin. ;p

George Wang is, of course, the guy steering AIMS Financial Group and who brought AMP Capital along to recapitalise AA REIT so many years ago.

AA REIT has turned out to be a fantastic investment for George Wang but if the price is right, he would probably let go as he seems like a savvy businessman to me.

laurence said...

Looks like AK's going to laugh all the way to the bank ................................... yet again!!!!!!!!!

AIMS APAC REIT appears on radar as target for merger with ESR-REIT
FEB 5, 2021

AK71 said...

Hi Laurence,

To be honest, I rather ESR REIT leaves AA REIT alone.

However, if a very strong offer is put on the table and if it is good enough to sway Mr. George Wang, it isn't a bad outcome for me either.

Unknown said...

Hi! Wanna ask your opinion on SGX vs like USA stocks? how do u feel about buying US stocks?

AK71 said...

Hi Unknown,

The Singapore market has enough to keep me occupied. :)

Could we be financially free by investing in Singapore only?

SgFire said...

Hi Ak

The batch i purchased during the crash is now yield at 10%. If only such opprtunity come often otherwise i just keep them for life.

AK71 said...

Hi SgFire,

Be greedy while others are fearful?

You have cracked the code on this one. ;)

SL said...

Hi AK,
Is it a good price entry to buy AA reit at $1.29 now. I have missed to add on when the price was lower.

AK71 said...

Hi SL,

When people ask me questions like this, I get palpitations, because it is like asking me if it is safe to buy now. -.-"

All I will say is that AA REIT is still undervalued. ;)

Unknown said...

Hi AK, can you also share about your thoughts regarding Centurion? Due to Covid, the worker and student hostel businesses were badly affected. And it seems like the situation will last a while more. Do you think they are able to hang on and pull through this situation?

AK71 said...

Hi Unknown,

Centurion is being prudent by not paying dividends and using the money to reduce debt.

Even when they were paying dividends, the payout ratio was only 50% or so of earnings which is really modest compared to what REITs do which is 90% to 100% payout of their cashflow.

All things being equal, I believe Centurion will emerge from this crisis not only intact but stronger.

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