AIMS AMP Capital Industrial REIT: An opinion. (UPDATED)

It has been a long time since I blogged about AIMS AMP Capital Industrial REIT which, till today, is still my largest investment in the S-REIT universe.





Reader says:

Dear AK,

I noticed from one of your recent posts that you invest quite a lot into AIMS AMP Capital Reit & 

I have heard a lot of good word about this reit too from other people & so I am interested to invest in it. 

However, I read somewhere that they were known as Macarthur Cook Industrial Reit & during the 08/09 financial crisis, they actually diluted the shares of the unitholders, causing dividend yield to drop. 

From what I know, that was due to the managers not seeing in alignment with the unitholders. 

What are your thoughts on this & do you think it'll happen again in another crisis? Thanks!

Best Regards,
J

My reply:

Hi J,

MI-REIT was a disaster because the management, then headed by Chris Calvert who went on to lead Cambridge Industrial Trust, did not secure financing for an asset they committed to buy. 

So, when the global financial crisis struck, credit dried up and MI-REIT was in big trouble.

Back then, George Wang led AIMS and AMP Capital from Australia to recapitalise MI-REIT. 





The recapitalisation exercise was accepted and AA REIT was formed but not without some drama. 

Of course, George Wang and partners got MI-REIT for a song. 

Why would they pump in their own money, otherwise?

Anyway, the important thing is that George Wang et. al. turned around an ailing REIT. 





They put in so much of their own money in the REIT, they must make sure the REIT adds value for investors over the years. :)

AA REIT is a very different animal from the old MI-REIT. 

The REIT's income is more diversified and its finances are also more resilient. 





The REIT is now bigger and better. 

I don't know what is going to happen in the next crisis but chances of the REIT coming out of one fully intact are much higher today than back in 08/09.

Best wishes,
AK





Related post:
6M 2015 passive income from S-REITs.

6M 2015 passive income from non-REITs.

What did I do in the non-REIT space in the first 6 months of 2015, specifically in stocks which pay dividends?

I added to my long position in Accordia Golf Trust which I initiated in late 2014. AGT's unit price fell to a level which I felt made it a fairly good investment for income. Of course, it has fallen to a lower level by now and I have been accumulating on weakness.

I added to my long positions in Hong Leong Finance and Singapura Finance (both trading at a discount to their NAVs) as I believe that a rising interest rate environment should benefit them because their NIMs should improve. Interest income forms about 80% of their total income. So, they are not as resilient as the 3 local banks but they should benefit disproportionally when interest rates are higher.

Singapura Finance

I added to my long position in Wilmar International which, if we have been following its many developments, is a bigger and more dynamic creature now than a few years ago. There are many things to like about Wilmar, including its relatively depressed stock price which incentivises me to buy more. So, I bought more when its stock price dipped slightly below its NAV earlier this year.

I added to my long position in ST Engineering which is one of the founding members of my investment portfolio. Although they will pay only 75% of their earnings as dividends instead of 100% when I first became an investor donkey years ago at $1.55 a share, it doesn't bother me. The fact that the company has grown and enlarged their footprint in the USA over the years is good news to me now with the US$ set to strengthen against the S$.

I added to my long position in SembCorp Industries and reduced exposure, both actions within 2 or 3 months of each other. For the full story, read related post at the end of this blog post. I believe that SembCorp Industries and SembCorp Marine have both hit a speed hump but I don't think they are going kaput.

SembCorp Industries

The world will still need crude oil and other products derived from crude oil. The world will still need energy. The world will still need clean water. SembCorp Industries should be more resilient than SembCorp Marine, obviously, but since I believe that they will both do well enough given time, I am willing to wait and be paid while I wait.

I also added two dividend paying stocks to my non-REIT income portfolio as their stock prices retreated from their highs: Tai Sin Electric and Starhub. For the stories, read related posts at the end of this blog post.

For the first 6 months of 2015, I received dividends and distributions from the following non-REITs:

1. SingTel
2. APTT
3. SPH
4. Croesus Retail Trust
5. OUE Limited
6. SembCorp Industries
7. SembCorp Marine
8. Wilmar
9. NeraTel
10. Hock Lian Seng
11. ST Engineering
12. Hong Leong Finance
13. Ascendas H-Trust
14. QAF
15. Accordia Golf Trust

SPH retains majority ownership of SPH Trust.

I need to remember that that Hock Lian Seng's dividend included a special dividend and it is, therefore, extraordinary. I must not think that it is going to recur although they do have a lot of cash on hand. The sale of Skywoods condominium is chugging along well enough and it is by now almost 70% sold. With a packed order book, Hock Lian Seng should continue to deliver good results in years to come.



Oops. I almost forgot.

For the first 6 months of 2015, passive income received from non-REITs is S$38,925.57 which works out to be $6,487.59 per month.

Related posts:
1. 2014 full year income from non-REITs.
2. SembCorp Industries: Partial divestment.
3. Tai Sin Electric: Nibbling for yield.
4. Starhub: A nibble at $3.85 a share.
5. Hock Lian Seng: Robust order book.
6. 6M 2015 passive income from S-REITs.
7. AK says create your own Dividend Machines.

6M 2015 passive income from S-REITs.

I shared how and why I reduced my investment in Sabana REIT substantially and the much lower level of passive income received from my S-REIT portfolio last year was mostly due to this. I retain a very small position in Sabana REIT as a reminder or incentive for me to track new developments, if any. The REIT could become a good investment again in future if the management get their act together.

I feel that although the distribution yield looks relatively attractive for Sabana REIT now, investors want to be cautious and remember that there are only a few months "before the expiry of 11 master leases (and) the Manager is working towards renewing or securing new master leases for 7 of them. The remaining 4 will likely be converted into multi-tenanted buildings." Occupancy level will most likely fall and DPU will most likely take a hit, all else remaining equal.

I am still rather happy with AIMS AMP Capital Industrial REIT. They are doing the right things to add value for unitholders, especially in the way they go about re-developing their properties to max out their plot ratios. I really like how they secure pre-commitment before embarking on such projects and I like the fact that insiders have a meaningful stake in the REIT too. This REIT is definitely one up on Sabana REIT.

I haven't really made any changes to my portfolio of S-REITs (from July 2014 to June 2015) apart from initiating a long position in Soilbuild REIT. The expectation that the REIT would benefit from commercial entities moving their activities (like call centres and IT departments) to business parks should pan out nicely.

So, although industrial properties S-REITs are expected to face challenges from more supply of industrial space in the next 2 years or so, Soilbuild REIT should weather this relatively well.

What about my investment in Saizen REIT? Well, there is some talk on how residential property prices in Japan have gone up in recent times because foreigners are more enthusiastically investing in Japan again. There is also some talk about how prices have gone up too much because rentals have not gone up in tandem. So, some are saying that prices must come down and maybe they would.

Now, perhaps, it is timely to remind ourselves that Japanese residential property prices continually fell for two decades and the fall in prices had been much sharper than the fall in rental in those twenty years.

Something I blogged about in December 2009: here.

The increase in property prices since the introduction of Abenomics is just a bump in comparison to the fall off the cliff in those twenty years. Saizen REIT remains very undervalued and should be a natural beneficiary of the recovery of the Japanese housing market.

My three largest investments in S-REITs are still:

1. AIMS AMP Capital Industrial REIT
2. First REIT
3. Saizen REIT

They account for the bulk of my passive income from S-REITs.

I also have smaller long positions in the following S-REITs:

4. Sabana REIT
5. FCOT
6. Suntec REIT
7. LMIR
8. Cambridge Industrial Trust
9. Cache Logistics Trust
10. Keppel REIT
11. Soilbuild REIT



Half year (2015) passive income from S-REITs: $45,626.80.

On a monthly basis, this works out to be $7,604.46 a month. The slight improvement compared to 2014 is probably due to the addition of Soilbuild REIT to my portfolio.

Although interest rates are expected to rise in the near future, it would be a mistake to think that S-REITs will all go the way of the Dodo. Remember that S-REITs might be bond-like but they are not bonds.

S-REITs are really property leasing businesses and they are more likely to do better compared to bonds in a rising interest rate environment. S-REITs are, generally speaking, still relevant instruments for income investors.

Related posts:
1. 2014 full year income from S-REITs.
2. AK says create your own Dividend Machines.

Looking for a way to preserve capital and enjoy dividends.

I always say that I don't know everything there is to know. I am not humble. I am just being honest. I am also not a very good investor. Again, I am not humble. I am just being honest.

So, when I get very difficult questions, I like to share the questions and hope that I will learn from other people who might have answers.

Here is a message from a reader:

Dear AK,

Hope all is well with you. I attended the second chit chat session that you organised. If you remember, I was the one who asked you about Malaysian Ringgit. I had some back then and eventually I remitted it out to Sg in US$ as I hope I can make some forex gain eventually.

If I were to ask any relationship managers what to invest in, they will advice that I buy products like bonds or funds that give out dividends. If I were to suggest US bank stocks, they will suggest products like structure notes which band 3 bank stocks and gets too complicating for me. My experience with relationship managers have never been good and most of the time I ended up losing or ended in positive territory after taking interest earned into account.

I am thinking of putting it in stocks and since with US$, I can only either purchase stocks listed in NYSE /Nasdaq or US$ denominated stock in SGX. I have shortlisted a few US$ counters in SGX and am of course leaning more towards the first two that give much higher dividend and perhaps GM. I would love if I can hear your view and advice especially on HPHT.

At this stage, I don't want too much risk and am more into capital preservation and hoping to get good dividends. Please feel free to make any other suggestions.

SGX Hutchinson Port Holdings Trust 9% Mandarin Oriental International 4.33% Jardine Strategic Holdings 0-89% Jardine Matheson Holdings 2.68% HongKong Land Holdings 2.36% Dairy Farm Internationals. 2,64%

NYSE General Motors 4.58% General Electrics 3.5%

Source: Bloomberg.

I had meant to write to you weeks ago but was kinda pei she to trouble you and to pick your brain but I know you have always been most generous with your sharing and so I have finally done it ! Thanks for sparing me some of your time smile emoticon

Second "Evening with AK and friends" early this year.

My reply:

I am sure you gave the matter much thought before converting your Ringgit to US$. I am happy for you.

With regards to your question on what to invest in, I believe you are right to avoid bond funds.

I don't know about the other stuff you asked about apart from HPH Trust. You could do a search in my blog for this and you will see what I think of it.

If you like, I could extract some bits of your message to me and share them on my blog to see what others have to say. I don't know everything there is to know, for sure.

If you are interested in dividends and you want to make sure you are doing it properly so as not to put your capital in jeopardy, you might want to consider signing up for Dividend Machines. See: A second chance to create your own Dividend Machines.

So, if anyone has any good ideas to share, please feel free to do so in the comments section.

Related posts:
1. Second "Evening with AK and friends".
2. Nobody cares more about our money than we do.
3. HPH Trust: Storm clouds over a safe harbour?