Without the recent rights issue, DPU would have been 2.95c. A dilution of 15%, post rights, and we have DPU at 2.51c.
I estimated that we could see an annualised distribution yield of some 9.26% based on the price of $1.08 per rights unit. At 2.51c, we have a distribution yield of almost 9.3% per rights unit. This beats my estimate.
However, we have to bear in mind that the REIT usually distributes more income in the final quarter of the year. So, everything remaining equal, DPU could dip in the next quarter.
Of course, things are not going to remain the same because:
1. The REIT's investment in Optus Centre will see its first full quarter contribution in 1Q FY2015. This will help to bump up income.
2. The redevelopment of 103 Defu Lane 10 will get its TOP in May 2014. So, expect income contribution to start sometime in 2Q FY2015.
3. We have to watch out for the increase in vacant space as two Master Leases expired in April 2014. Only 73.3% of the space in these two properties have seen leases renewed.
NAV/unit: $1.47
Gearing: 31.7%
Interest Cover: 5.2x
Based on a unit price of $1.42 and assuming an annualised DPU of 10c, we are looking at a distribution yield of 7.04% per annum. Although I expect a slight upward bias in income distribution in the next 6 months, I do not find the prospective distribution yield attractive enough to add to my long position at the current unit price. Why?
Two reasons:
1. An increasingly challenging situation with the supply of more industrial space which is outpacing growth in demand.
2. The prospect of higher interest rates (risk free rates) possibly from the middle of 2015. The REIT has $111.2 million worth of loans due in October 2015 and $175.8 million due in 2H 2016.
For anyone who is investing for income and thinking of putting down some money in this REIT now, he has to wonder if he is comfortable with the prospects and how things might turn out in the next 12 to 24 months.
See presentation slides: here.
Related posts:
1. AIMS AMP Capital Industrial REIT: Rights' value.
2. AIMS AMP Capital Industrial REIT: $1.425.