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.
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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: 1.60Maximum plot ratio: 2.50541 Yishun Industrial Park A (Lease expiry: June 2054)Current plot ratio: 1.28Maximum plot ratio: 2.502 Ang Mo Kio Street 65 (Lease expiry: March 2047)Current plot ratio: 1.31Maximum plot ratio: 2.50103 Defu Lane 10 (Lease expiry: June 2043)Current plot ratio: 1.20Maximum plot ratio: 2.508 Senoko South Road (Lease expiry: October 2054)Current plot ratio: 1.30Maximum plot ratio: 2.5010 Soon Lee Road (Lease expiry: March 2041)Current plot ratio: 0.88Maximum plot ratio: 2.50With 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.Source: A Singaporean Stockmarket Investor (ASSI)
