K-REIT: 10.2% DPU accretion.

On 11 Oct, I blogged that "the actual DPU forecast following the completion of the transactions will be disclosed in the Unitholder Circular which is not available yet. Will this swap agreement be DPU accretive?  It should be since we are seeing a more than doubling of gearing ratio from 15.2% to 39.1% and a boost to K-REIT’s assets to about $3.4 billion from $2.5 billion."

On 18 Oct, K-REIT's management announced that upon the completion of the transactions, the REIT's DPU would increase from 6.06c to 6.68c which represents a 10.2% DPU accretion for 2011. Although this increase is relatively modest given the fact that the REIT's assets would grow 36% because of the transactions, some other benefits of the said transactions could inject more stability into the REIT. A couple of such benefits are its weighted average debt maturity profile extending to approximately 4 years and its weighted average lease to expiry (WALE) extending from 5.7 years as at 30 June 2010 to 7.8 years.

However, as I try to optimise income from my investments, an annualised DPU of 6.68c or a yield of 5.02% based on the last traded price of S$1.33 per unit is not quite as attractive for me.  I have halved my smallish investment in K-REIT and will redeploy the funds.

Related post:
K-REIT: Swap agreement.

Cambridge Industrial Trust: Fails to deliver.

I have blogged about how I dislike CIT's share placements which dilute current unitholders' shares of the REIT.

On 14 August, I blogged that "Due to the acquisitions, total distributable income is expected to increase 5.7%.  However, in order to fund the acquisitions, the private placement would lead to an increase of 10.15% of units in issue.  This effectively dilutes the DPU of CIT, post acquisition. DPU is estimated to fall from 5.36c to 5.14c.  NAV per unit will also fall from 60c to 58c."

The 3Q2010 results released today show the following changes quarter on quarter:

1. Net assets increased from S$522.8m to S$554.1m.

2. Number of units in issue increased from S$873.2m to S$962.1m.

3. NTA per unit decreased from 59.9c to 57.6c.

4. Net property income decreased from S$16.1m to S$15.9m.

5. Distributable income remains unchanged at S$10.8m.  This is despite expectations that it should increase 5.7% due to acquisitions announced in August!

6. DPU reduced from 1.238c to 1.187c.

Although the REIT has grown in net asset value by 5.99%, the number of units in issue has grown by 10.18%. NTA per unit has, naturally, suffered a decrease in value.  Although net assets increased, the REIT suffered a decrease in net property income.  Overall, DPU which is what matters to most unitholders suffered a 4.1% decrease.

The annualised DPU has decreased to 4.709c.  This is much worse than the estimates in August which was for the DPU to fall from 5.36c to 5.14c. A DPU of only 4.709c gives a yield of 8.33% based on the last traded price of 56.5c before trading was halted at 3.08pm.  This pales in comparison to AIMS AMP Capital Industrial REIT's DPU of 2.08c which translates to a yield of 9.24% based on a unit price of 22.5c.

Although the REIT's gearing has been reduced to 39.2%, it is still much higher than AIMS AMP Capital Industrial REIT's 34.8%.  Its interest cover ratio of 3.8x is also lower than AIMS AMP Capital Industrial REIT's 4.21x. With NTA per unit at 57.6c, it is trading at less than 2% discount while AIMS AMP Capital Industrial REIT is trading at a 13.5% discount to NTA per unit of 26c.

If I have to choose between the two industrial S-REITs, it is quite clear to me that CIT is a distant second to AIMS AMP Capital Industrial REIT.  Indeed, I have chosen, having divested all my interest in CIT while increasing the size of my investment in AIMS AMP Capital Industrial REIT.

See presentation slides here.

Related post:
Office S-REITs VS Industrial S-REITs
Cambridge Industrial Trust: Acquisitions and private placement.
AIMS AMP Capital Industrial REIT: Buying more?