AIMS APAC REIT investment is larger now.

When I blogged about AIMS APAC REIT (AA REIT), formerly AIMS AMP Capital Industrial REIT, last month in April, I said:

"I have not done anything to my investment in AIMS APAC REIT for many years."

Well, I can't say that now because I just added to my investment in AA REIT.

I spent a few hours in the last few days reading, crunching some numbers and looking at the chart before deciding to buy some.

The dust seems to have settled for AA REIT at least for now.

Volatility has reduced tremendously and the unit price seems to have found a floor at about $1.15 a unit.

Looking at the chart, the rising 20 days moving average (20d MA) provides immediate support at $1.14 a unit.

However, the 50 days moving average (50d MA) is still declining and is currently at about $1.16 a unit.





The 50d MA has been providing resistance which has kept a lid on the unit price.

It is the proverbial tug of war between the bulls and the bears.

One side is unwilling to pay a higher price while the other side is unwilling to sell at a lower price.

The result is a reduction in price volatility and we see some kind of an equilibrium or stalemate as neither party is able to claim victory.

The rising 20d MA and the declining 50d MA are just about to form a bullish crossover, a golden cross, which the textbooks would say is a bullish signal.

The way things look now, the golden cross might happen in the next two or three sessions but, of course, if AA REIT's unit price suddenly plunges, it might not happen.

Of course, I always say there is no certainty in such things, only probability.

I am inclined to think that, at the moment, the only certainty we have is that things are looking relatively more settled now.

Any unwinding of such a situation could see unit price move either way and sometimes quite violently too.

Which direction?

Your guess is as good as mine.






Now, a bit of FA to provide some padding for TA is in order.

At $1.15 a unit and a DPU of 10 cents, we are looking at a distribution yield of about 8.7% which is a big increase over a distribution yield of about 6.9% when AA REIT was trading at about $1.45 a unit before the crash caused by the COVID-19 crisis.

The distribution yield looks relatively attractive but how realistic is it?

I always say that AA REIT is one of the better run industrial properties REITs in Singapore and I still think it is the case.

Of course, no matter how well run a business is, if it is up against an insurmountable external crisis, it is still toast which was why I kept saying it was better to err on the side of caution and wait for the dust to settle before deciding whether to buy more.

Very early into the crisis when the air was very dusty and the visibility was very poor, a friend decided to buy shares of SIA when it fell to $8 a share because he thought the blue chip was already very cheap at that price.

That blue chip is now a blue black chip.

Together with Temasek Holdings, my friend is performing National Service as he chips in to save the blue chip.

He is coughing (probably because of all the dust he inhaled) up more money to keep SIA alive while he has to live with the very real possibility of getting zero income from the investment for the next many years.






Anyway, back to AA REIT.

With gearing level at 35% and an interest cover ratio of more than 5x, AA REIT will probably be able to weather this storm pretty well now that we have a better idea how the COVID-19 situation might evolve and also how we could keep it better under control until a safe and effective vaccine becomes available to the world.

Of course, to be sure, there is always the possibility things could go awry.

In my blog on my largest investments in REITs last month, I said that if the crisis were to drag on for much longer, then, we could see tenants defaulting on rents.

For sure, it is possible that we could see a 10% or even a 20% reduction in AA REIT's income if the bad situation the world is in now were to worsen.

So, trading at $1.15 a unit which is about a 20% reduction from $1.45 a unit before the crash shows that Mr. Market is cognizant of the risks AA REIT must face.

Talking about this has a mildly speculative flavor, of course, but I remind myself not to be overly optimistic thinking that 8.7% yield is a definite thing as I could be setting myself up for disappointment.

We should be prepared for the possibility of bad news from AA REIT when they release results and maybe provide guidance next week.

Don't throw in everything including the kitchen sink.

I don't know about you but I need my sink in the kitchen.






While we are on the subject of speculation, it is also interesting to note that ESR Cayman and ESR HK have both been increasing their investments in AA REIT.

Their most recent purchase happened earlier this year in March and that was worth more than $2 million, if I remember correctly.

Of course, there has been talk about ESR harboring thoughts of a takeover of AA REIT for some time now.

Although I hope it isn't the case and it doesn't happen, it is a definite possibility.

If you are interested in this possibility, I blogged about it initially in 2018:

2Q 2018 passive income from S-REITs.

At that time, DBS said AA REIT "could be a target for takeover and suggested a target price of $1.55 to $1.65 per unit."

More recently, there were articles in The Business Times (November 2019):

ESR Cayman Ltd (ESR) acquired 26,827,400 units in AIMS APAC Reit (AA Reit) for a consideration of S$37,290,086 at S$1.39 per unit.

and also The EDGE (December 2019):

3 potential S-REIT mergers to watch out for.






Previously, when AA REIT's unit price was averaging $1.45 a unit which was a premium to its NAV, a takeover might have been seen as too demanding or too pricey.

With unit price now at $1.15 a unit which is a discount to its NAV, a takeover is probably more palatable and also more feasible.

To me, ESR accumulating units at $1.30+ a unit continually and in pretty large chunks up until middle of March this year tells me what ESR was thinking about AA REIT as a value for money investment at that price level.

What will their next move be?

You tell me.

Yes, I know.

Bad AK! Bad AK!

I will stop here.

Time for me to move from this world of imagination to another world of imagination.

Till my next blog, be socially responsible and do the right things.

We are #SGUnited.

You might be interested in the following video on AA REIT's portfolio of properties:





Related post:
Largest REIT investments updated.

APTT: 1 for 4 rights issue at 12.8c a unit.

I am taking some time off from "Legends of Runeterra" which is a free to play game recommended by a reader, Azrael, in order to blog about APTT.

As a new player in both "Legends of Runeterra" and "Magic the Gathering: Arena", I find the former to have a better free to play model.

So, a shout out to Azrael for the recommendation.

Here is a short video on one of the regions in game:



OK, onward to victory, er, I mean APTT.

In late 2018, I increased my investment in APTT substantially as its unit price plunged.

A little more than half a year later, I sold those units as the stock market rallied, making some pocket money in the process.

I am still holding on to a legacy position in APTT which is largely free of cost by now.

At today's market price, this legacy position is a really small percentage of my portfolio.

How small?

Off the top of my head, probably less than 1% or maybe even less than 0.5% of my portfolio.

As this legacy position is largely free of cost, I am quite happy to simply hold and collect whatever money the Trust decides to distribute to me regularly.

The DPU was last fixed at 1.2 cents per annum which means a yield of 9.37% based on a unit price of 12.8 cents.

Of course, as my investment is largely free of cost, whatever income distribution I get is almost like getting free money and the yield is pretty much infinite.






Now, the proposed rights issue.

As an investor for income, the first thing I ask is what happens to the DPU after the rights issue?

With the proposed 1 for 4 rights issue, the immediate guidance is for a reduced DPU of 1 cent per annum.

This reduced DPU means a yield of 7.81% based on a unit price of 12.8 cents.

For my legacy position, I will just hold on because, like I said, it is almost like getting free money.

The question is whether should I take part in the rights issue?

Regular readers know that I like rights issues more than private placements.

I always get the option to participate in rights issues but I don't ever get invited to private placements.

Rights issues allow small investors like me to participate in the equity fund raising exercises of our businesses.

Some readers might remember my series of blogs on REITs and rights issues.

If you are new to my blog or don't remember, here are a couple of blogs from 2011 on the subject:

1. REITs and rights issues: A Singaporean tale.

2. REITs and rights issues: Dilutive or not?

Of course, to be fair, rights issues can also mean an invitation to throw good money after the bad.

So, what do I think of APTT's proposed rights issue?

Would I take part in the rights issue?






Rights issues are good if the funds raised will go towards efforts to generate more income and hopefully that means higher DPU for the investors for income like me.

Generally, I do not like rights issues which raise funds to pare down debt or to strengthen the balance sheet as it is not rewarding for me as an investor for income.

After this proposed rights issue, to reiterate, APTT's DPU will reduce to 1 cent per annum from 1.2 cent per annum.

We want to take note that this would be achieved on the back of increasing the distribution payout by 4.2% too.

Income is not increasing.

The payout is increasing.

We also want to take note that there is also no guarantee that DPU will stay at a minimum of 1 cent per annum.

Could we see further reductions in DPU in future?

It is a pertinent question.

There is a chance it could happen.





The big reduction in DPU in 2018 was necessary so that APTT would be distributing only a percentage of its earnings to their investors which allowed APTT to fund their transformation strategy without having to take on more debt.

Prior to that, APTT was funding distributions by taking on more debt.

Apparently, that big reduction in DPU in 2018 was not enough for them to pare down debt fast enough.

The management say a key focus of their strategy is to pare down debt.

So, another reduction in DPU in future is not improbable.






It is interesting to see that if no one else is interested in the rights issue, some insiders will buy all the rights units available.

It is said that it is a vote of confidence by the insiders because even the super rich would not want to lose money.

Peter Lynch would say that these insiders are buying probably because they think they will make money.

Well, to be fair, the rights issue will raise about $46 million which is a drop in the ocean for the super rich insiders like Mr. Lu Fang Ming, Mr. Hsiao Han Shen and Mr Dai Yung Huei.

When we have a lot of money, we can also be less calculative when it comes to money.

We can also afford to be more adventurous.





From all that I have said, it should be obvious that I will pass on this rights issue.

What?

My equity participation in APTT will weaken?

So be it.

I will still get free money from my legacy investment in APTT and I will keep it that way.

Simply from a distribution yield perspective, a prospective 7.8% yield isn't all that attractive when I can get a similar yield from IREIT Global which has greater clarity when it comes to income generation and it is also financially a stronger outfit, for example.

APTT could grow to be a very good investment in future and if that should be the case, I would still benefit from my existing investment.

Not participating in the proposed 1 for 4 rights issue is not going to make a big difference to me.





Till my next blog, be socially responsible and stay safe.

Things might get worse before it gets better.

When I went to the neighborhood supermarket last evening, I saw a group of elderly people lounging and chatting in public.

They were either not wearing masks or using them only to cover their chins.

In the supermarket, there was a family of four shopping.

The youngest in the family, a girl, was rollerblading in the supermarket.

Sigh.

There will always be irresponsible people amongst us.

We should stay united and do the right things.

We should be #SGUnited.

Related post:
Insider buying in APTT and Lu Fang Ming.
"The Monetary Authority of Singapore (MAS) added that the recession ahead is likely to be deeper than first thought."