Tuesday, February 15, 2011

My opinion on AIMS AMP Private Placement

On Valentine's day, AIMS AMP Capital Industrial Reit publishes an announcement that they will like to buy NorthTech through a Private Placement exercise.

The brief details:

Purpose:
To acquire NorthTech, a 4 storey high-tech facility with underground parking and loading/unloading facilities from Prime Properties.

Funding:
Private Placement - Gross proceeds of S$43.5 million
Debt Finance - $30.9 million

Issued price to institutional investors:
Between S$0.1976 and S$0.2041

Aggregate leverage:
Pre transaction: 32.7%
Post transaction: 33.6%

NPI yield
AIMS AMP existing property portfolio: 7.2%
NorthTech: 7.6%

Therefore, it is yield accretive with gearing about 33.6% after the private placement exercise. The units are sold to a discount of about 8%, given the last done price is 21.5 cents today. Post-exercise, DPU (Distribution Per Unit) will be diluted.

Advanced Distribution to existing shareholders is estimated to be 0.285 cents; books closure date is on 22 Feb and payout on 28 Mar.



So do you think it's worth to sell, hold or buy more at distressed open market price? (if the selling continues in the week)

1. Too overly aggressive in a short time period?

Before the Private Placement exercise, AIMS AMP announces a S$79 million Rights Issue on 24/08/2010. That is about 5 months apart. At that time, the purpose of the Rights Issue is to acquire a ramp-up warehouse and logistics facility, C&P Logistics Hub 2 for S$161 million and part of it will be funded by Rights.

Ok, the objective for both funding exercises are clear - where the money goes. AIMS AMP is adding more properties to their portfolio. Checked.

How about the time period ? Has Nicholas McGrath been too aggressive in the short span of time buying up assets amidst the low interest rate environment, thus chalking up debt?

Yes, there is still room for debt expansion in terms of asset acquisition but one has to be prudent in debt management, especially on the Reit model and past experiences. Of course, on the contrary, AIMS AMP has well capitalized on the low interest rate from StanChart (I do not know what is the bank rate AIMS AMP has obtained in getting financing of S$30.9 million - think it's not specified)

In The Edge article dated 14 Feb 2011, the current outstanding debt of AIMS AMP Reit is S$280 million loan from four banks due from 2014. That is effectively 3 years from now. Can AIMS AMP repay their obligations, considering their 2 purchases within 5 months time frame? Ok, their sponsor is strong nonetheless but that does not mean cashflow not well managed.

If you recall previously, M1-REIT (before re-naming AIMS AMP) averted bankruptcy after a very nervous race, securing the approval for a very dilutive equity fund-raising plan to AIMS Financial, AIMP Capital and other investors before a December 2009 deadline. Existing retail investors are disgruntled as their interests did not seem to be well taken care of.

I hope we do not see this similar situation in the near future again. (i.e. 2014)

2. Too much fund-raising? Charity show?

Prior to point 1., what do you think of a Reit whom, in one calender year, raises multiple Rights/Private Placements by acquiring more assets but may not place too much emphasis on asset enhancement at the current moment? Do we want to be the "Greater Fool" giving money and supporting them always?

Also, the exercise can be done through another round of Rights Issue? Perhaps AIMS AMP may want to avoid "Rights Issue Fatigue" since the last round of fund-raising via retail investors is not too long ago? Not sure, only vague assumptions.

3. Support remains intact

Moody Investor Service releases a note on 15 Feb 2011, giving the assurance that they see no immediate impact on its Ba2 corporate family rating following the announcement of AIMS AMP Northtech acquisition. Another point to note is that there seems to be no major selling off from institutional investors such as Dragon Pacific Assets or APG Algemene, Stichting etc. (according to ShareInvestor records)

My conclusion

I will buy off more AIMS AMP shares on the open market should the price goes to 20.5 cents to 21 cents, taking into account the 3rd point raised and the fact that the it's yield accretive not destructive; dilution of the DPU being negligible.

If not, I will wait for my Advanced Distribution of estimated 0.285 cents, payable on 28 Mar. And on 15 Mar the dividend payout.

Still, I will remain cautious on AIMS AMP development and keep abreast of news releases from the management. Surely, we do not want to be "Greater Fool" always if they keep raising funds - and if they do so in the next few months, I will re-assess my position again.

*Above is just my personal opinion. Please kindly seek your Financial Adviser for their professional guidance to make a better informed investment decision.

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