I know I said in my last blog post that the next one will be on my other investments going into 2014 but I received a circular from AIMS AMP Capital Industrial REIT last night and I thought I should blog about this first. Change, the only constant in life.
Optus Centre in New South Wales, Australia, will be the REIT's first property outside Singapore. The proposed acquisition is for a 49% interest in the property.
The purchase will be fully funded by debt and, post acquisition, we will see leverage at 37.4%. This is comfortably under 40% and unless the REIT intends to have further acquisitions, I do not see a need for any fund raising in the near future.
As an investor for income, I am, of course, interested in how the acquisition might affect my income. Looking at the pro forma numbers, I am quite pleased with the whole deal.
The REIT's existing portfolio brings in S$59.75m in NPI annually while the property will bring in S$16.78m in NPI. The NPI yield of the REIT's existing portfolio is 6.2% while the NPI yield of the property to be purchased is 8.1%. I am happy to see that the acquisition is NPI yield accretive.
Sometimes, we see acquisitions which are DPU accretive and DPU yield accretive but are actually not NPI yield accretive. These are less desirable as it means that funds are being used to buy properties which will add to gross income but at a lower rate of return.
My confidence in the management of AIMS AMP Capital Industrial REIT's has strengthened with this acquisition. They have demonstrated their competence in all that they have done so far.
Although AIMS AMP Capital Industrial REIT has proven itself to be a well run REIT, with its NAV at approximately $1.48 per unit, post acquisition, to buy at a 10% discount to valuation would mean buying at $1.33 a unit. Yes, we all love margins of safety, I am sure, especially with the spectre of rising interest rates over the next few years.
At the current price level, I will not be adding to my long position in AIMS AMP Capital Industrial REIT. However, I see no reason to divest either because it has proven to be a good investment and is likely to continue delivering the goods.
As my single largest investment in the S-REITs universe, AIMS AMP Capital Industrial REIT will probably be making a slightly more significant contribution to income generated by my portfolio of S-REITs in 2014.
Related post:
1. Made and still making money.
2. 2013 full year income from S-REITs.