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The issue of how REITs must constantly raise funds in order to expand has been beaten to death and I have also blogged about it more than once. The debate can and probably will go on forever but, as far as I am concerned, it has little value and serves to distract us from what really matters.
If REITs are raising funds for activities that are yield accretive, I would readily support the exercise and would, in fact, try to subscribe for more than my entitlement of rights if the offer is very attractive. Bearing this in mind, I have been able to profit from rights issues. To me, as an investor, I want to make money and if I could profit from rights issues, I would.
To this end, one of the rights issues which I have made the most money out of was AIMS AMP Capital Industrial REIT's. The rights were priced at 15.5c per unit. I applied for many excess rights and received quite a large number of rights units in that exercise. Post consolidation, these rights units cost 77.5c per unit. At today's price of, say, $1.22 per unit, there is a capital gain of about 57.5%. From then till now, I have also enjoyed an annual distribution yield (on cost) of some 13% on these units.
Of course, there are some who would point out that the units I was holding on to, pre-rights issue, suffered some dilution and loss in value. The suggestion is that Mr. Market would recognise this and that it could be reflected in the unit price. Well, at today's price of $1.22 a unit, it would translate into a pre-consolidation price of 24.4c per unit. I don't remember ever paying as much as 24c a unit, pre-consolidation, for AIMS AMP Capital Industrial REIT. There is something to be said about a penchance for buying into REITs which are trading at a (large) discount to their NAVs, perhaps.
Why am I quite suddenly talking about AIMS AMP Capital Industrial REIT and rights issues?
OK, before you go clicking on SGX looking for announcements, no, they are not having a rights issue. Then why?
Well, some people say that I am always using First REIT as an example of how investing in REITs can be very rewarding. So, this is another example to the same effect, isn't it?
It is also a more powerful example since there were many who cursed George Wang et al. from the days when it was known as MI-REIT and in need of recapitalisation, declaring that the REIT would never amount to much after the rescue.
(Pause...)
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| 29 Woodlands Industrial Park E1. |
OK, if you have guessed that this is not the real reason behind this blog post, hurrah! You guessed correctly.
I try to be forward looking and care more about the future than I do about the past. Caring more about the past could become an obsession as I grow older though. I hope it would not happen although I am sure it is only a matter of time. I see enough examples of how it is happening to older people all the time.
The catalyst for this blog post is the annual report from AIMS AMP Capital Industrial REIT which I was flipping through over the weekend. Specifically, it has to do with the fact that quite a number of properties in the REIT's portfolio have re-development potential.
As we have seen in the current redevelopment of 20 Gul Way which is to be completed in two phases (phase 1 by November 2012 and phase 2 by December 2013), redevelopment is a very good way of delivering more value to unitholders.
The redevelopment of 20 Gul Way did not require any rights issue although there was a private placement to CWT Limited (and regular readers know that I would very much prefer rights issue but the private placement was rather small and a rights issue would have been rather costly.)
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| 10 Soon Lee Road |
Well, there are a few more properties in the REIT's portfolio which could be considered for re-development to take advantage of the maximum plot ratios allowed. Examples are:
10 Changi South Lane (Lease expiry: June 2056)
Current plot ratio: 1.60
Maximum plot ratio: 2.50
541 Yishun Industrial Park A (Lease expiry: June 2054)
Current plot ratio: 1.28
Maximum plot ratio: 2.50
2 Ang Mo Kio Street 65 (Lease expiry: March 2047)
Current plot ratio: 1.31
Maximum plot ratio: 2.50
103 Defu Lane 10 (Lease expiry: June 2043)
Current plot ratio: 1.20
Maximum plot ratio: 2.50
8 Senoko South Road (Lease expiry: October 2054)
Current plot ratio: 1.30
Maximum plot ratio: 2.50
10 Soon Lee Road (Lease expiry: March 2041)
Current plot ratio: 0.88
Maximum plot ratio: 2.50
With gearing level at 30% or so, I would not be surprised if a major rights issue is required if there should be plans to redevelop these sites. In fact, I expect it to take place. When will it take place? Ah, that one, I don't know.
If you think that I am quite excited with the prospect of another rights issue, you are right (pun unintended). I am pretty sure I am not the only one too.
Related posts:
1. REITs and rights issues: Dilutive or not?
2. REITs and rights issues: A Singaporean tale.
3. AIMS AMP Capital Industrial REIT: Accumulate on weakness.
My very first blog post on AIMS AMP Capital Industrial REIT in December 2009:
AIMS AMP Capital Industrial REIT (MI-REIT).
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