Some readers left comments here in my blog while others wrote me emails asking me about the proposal by AIMS AMP Capital Industrial REIT to consolidate 5 units into 1.
Personally, I am not really concerned with this exercise. Why?
The fundamentals will not change with this exercise. It is still the same REIT with the same fundamentals. As for whether the REIT's unit price will do better or worse after consolidation, if only I knew.
Am I not doing anything with regards to this exercise? I will continue to monitor the REIT's unit price. If its valuation becomes very compelling, I will buy more at supports. If the unit price were to retest resistance, I could divest.
A more important and positive development is the upgrading of the REIT's corporate rating by Moody's. The new rating is Ba1 with a stable outlook. A stronger rating improves investors' confidence and could make borrowings cheaper and more accessible for the REIT.
The improvement in rating is even more significant when we take into consideration the redevelopment of 20 Gul Way.
In an earlier blog post, I said that the redevelopment is a step in the right direction as the REIT moves to maximise the use of its plot ratio of 1.4x from the current 0.46x.
However, there will be short term pain manifested in various forms during the redevelopment period. The most immediately apparent would be the loss of rental income from 20 Gul Way during the redevelopment period.
I estimate a reduction of about 9% in distribution income which means that the DPU per year once the proposed redevelopment is underway could be lowered to 1.99c, assuming that the REIT pays out 100% of its distributable income.
At a unit price of 20c, therefore, the REIT still offers an attractive proforma distribution yield of almost 10%. If the REIT were to reduce payouts to 90% in view of the said redevelopment, we are still looking at a proforma distribution yield of almost 9%.
Read full report from Moody's here.
Related post:
AIMS AMP Capital Industrial REIT: Higher DPU and 20 Gul Way.