Purchase of AIMSAMPI Reit

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On 20/2/14, I purchased AIMSAMPI Reit, and took up their 7 for 40 rights issue. In addition, I subscribed to additional rights – giving me an average purchase cost of $1.30. Using an annualized dividend of $0.1069 pre-rights, and assuming this dividends remain constant, the post rights dividend per share would be diluted to $0.091 which gives me approximately a 7% yield. However, the future yield would be greater after considering the income coming in this year from the redevelopment of 103 Defu Lane 10, and 45% acquisition of Optus Centre in Sydney. In the next year, income would start coming in from Phase 2E and 3 of 20 Gul Way. This should bump up DPU. My purchase was in line with my strategy to add more income stocks in my portfolio.

One might ask, “Why purchase REITS now in lieu of rising interest rates?” I do understand that the coming rise in interest rates would affect REITS negatively, but I feel that the recent selloff in REITS presented an attractive price for me. Nevertheless, with the expected rise in interest rates coming in the next few years, I needed a greater margin of safety before sowing the seed. At my average purchase price of $1.30, I was getting AIMSAMPI Reit at a P/B ratio of 0.886 which represents a discount of around 11%. I must admit this was not a great bargain, but I felt it was a fair purchase.

The REIT is an industrial REIT and what attracted me to the company was its strong management. Management has guided the REIT with a steady increase in assets, revenues and earnings over the past 4 years while maintaining a pretty consistent gearing ratio of 30%. Its occupancy rates (~98.2%) are higher than the average in the industry, and its recent acquisitions and asset enhancement initiatives have proved to be executed within budget and DPU accretive. Its DPU have also shown stability and a gradual increase in the past 4 years. Based on its 3rd quarter results, its gearing ratio stands at 26.4%, which is comfortable for me. Although I do not like companies which have to rely on debt often to grow, I recognize that this is the nature of the business in the REIT sector, since REITS do have to distribute 90% of their distributable income. The low gearing gives it headroom to take on more debt if needed. However, a downside is that most of its debt matures in 2015 and 2016 – something that I hope will be more evenly spaced out. The REIT mostly caters to the logistics and warehousing segment sector (~48.2% of rental income in 3QFY14). One area to keep a lookout for would be its lease expiry profile, in which a significant amount of leases (~80% will be expiring in the next 4 years). This represents an opportunity for positive rental reversions, but it also signifies risk in not being able to re-secure tenants.

My purchase was a small one, but I may add more in the future if the price becomes more attractive.

 

Disclaimer: The author owns shares in the abovementioned company. The ideas expressed in this blog should not be construed as an enticement to buy or sell the securities, commodities or assets mentioned. The accuracy or completeness of the information provided cannot be guaranteed. Readers should carry out independent verification of information provided. No warranty whatsoever is given and no liability whatsoever is accepted for any loss howsoever arising whether directly or indirectly as a result of actions taken based on ideas and information found in this blog.

Divestment of Marco Polo Marine

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On the 03/04/2014, I divested my holdings in Marco Polo Marine at a price of $0.385. With dividends factored in, the return is 3.46%. The reason for divesting my stake in Marco Polo Marine was due to the company expanding into the jack-up rig sector with a $214.3 million order. This order is a large figure for the company which has a market cap of only $130 million. The management has stated its intent to take on more debt to fund this purchase. The company’s fortunes are becoming more intertwined with the oil and gas industry – an industry which I do not understand fully yet. Moreover, although this new strategy is aligned with management’s overall strategy of venturing into the oil and gas sector, I am unsure whether management has the core competence in this area. Back in January, I attended Marco Polo’s AGM, and somehow left not feeling totally at ease with its management and its replies to some of the shareholders’ questions. Nevertheless, if the execution of this strategy is successful, I would expect earnings to grow quickly.

As this is something I am not familiar with, I have decided to stay away for now.