AIMS AMP Capital Industrial REIT refinances JPY Bridge Loan
Singapore, 23 February 2010 – Further to its announcement made on 18 December 2009, AIMS AMP Capital Industrial REIT Management Limited, the manager of AIMS AMP Capital Industrial REIT, is pleased to announce that it has successfully refinanced its JPY Bridge Loan of JPY1,000.0 million (equivalent to S$15.8 million1) (the “JPY Refinancing Facility”) from Resona Bank Ltd. and Shutoken Leasing Co. Ltd.

The JPY Refinancing Facility has a term of two years from 18 February 2010 and bears a fixed interest rate inclusive of margin of 2.09% per annum.

The Board of Directors of AIMS AMP Capital Industrial REIT Management Limited, the manager of AIMS AMP Capital Industrial REIT, announced on Friday the resignation of Lim How Teck as its non-executive independent director and chairman of the audit committee with immediate effect.

It said Mr Lim has advised the board that he is resigning in order to focus his attentions on his role on the board of the manager of another REIT.

Mr Lim believes that his resignation from his responsibilities is necessary to avoid any public perception of a potential conflict.

A New Name, A Fresh Start

• 3Q10 revenue of $12.6 million, net property income of $9.9 million, distributable income available to unitholders of $5.4 million.

• Total asset value of $565.9 million, gearing at 28.9%

• Fair value maintained at $0.22, recommendation upgrade from sell to hold 

A new name, a fresh start
AIMS AMP Capital Industrial REIT (previously known as MacarthurCook Industrial REIT) recorded 3Q10 revenue of $12.6 million (-3.3% y-y, +6.2% q-q), net property income of $9.9 million (+5.3% y-y, +9.1% q-q) and distributable income available to unitholders of $5.4 million (-14.0% y-y, +4.0% q-q). The lower y-y revenue was due to the lower recovery of property tax and land rent, which is reimbursable by tenants. However net property income showed increment for both y-y and q-q mainly due to the one-month revenue contribution from the 1A IBP property. For 3Q10, AIMS declared a special distribution prior to the issuance of placement units of 0.95 cents for the period from 1 Oct 2009 to 23 Nov 2009, and a distribution of 0.1868 cents for the period from 24 Nov 2009 to 31 Dec 2009. 

Portfolio asset value as at 31 Dec 2009 was $565.9 million. Additionally, the acquisition of the 4 properties from AMP Capital was completed on 11 Jan 2010. The property portfolio achieves an occupancy rate of 99.0%. 

We are expecting AIMSAMP REIT to report better growth in the next quarter from the full quarter contributions of the newly acquired properties 

Capital management

AIMSAMP REIT is definitely in much better financial shape now, after the tough recapitalization exercise last year. AIMSAMP REIT has total debt of $190.2 million, out of which $175 million is denominated in SGD and due in 2012. The remaining $15 million is JPY loan, which AIMSAMP REIT has already secured the credit facility to refinance it. Gearing is at 28.9%, which is an improvement from the pre-recapitalization gearing of 44.7%. 

Our concerns

We are definitely more optimistic of the REIT now, with an improved balance sheet and also properties that are providing good yields. We also see some good quality investors in the REIT. Our two main concerns now are

1. portfolio acquisition growth is constrained by the gearing limit of 35%

2. high interest cost that dampens distribution

One of the covenants in the refinancing facility is that AIMSAMP REIT will be subjected to a higher interest margin by 100 basis points if its gearing is subsequently increased to above 35%. Currently it is paying an interest margin of 3.5% on $175 million of loan. This essentially limits AIMS expansion plan to take on more loans and investors would also be adverse to equity funding after the recent dilution. Our second concern follows from the first point. Together with the interest margin, the total interest rate on the loan is 5.4%. If gearing breaches the 35% mark, interest rate would increase by another 1%. During a discussion with management, one of the strategies is the repositioning of the properties. Divesting assets and using the proceeds to pare down debt and subsequently taking on new loans with lower interest cost is one of the ways to add value to unitholders. 

Forecasts

We are forecasting 4Q10E DPU to be 0.36cents, bringing full year FY10E DPU to be 4.95 cents. Subsequently, we forecast FY11E DPU to be 2.01 cents, which translate to a yield of 9.3%, incorporating the full year contribution from the acquired properties but without assuming further acquisitions. In our view, it would be a big plus if management is able to execute its plan to lighten its interest expenses. On the other hand, collecting an annual yield of 9% sounds fine to us too. We are maintaining our fair value of $0.22 and upgrading our recommending from sell to hold.

AIMS AMP to pay special distribution

AIMS AMP Capital Industrial Reit yesterday said a special distribution of 0.95 cent a unit will be paid on March 23. Unitholders with units in their CDP account as at Nov 30 will be entitled to the special distribution with the exception of 221.4 million units issued to AMP Capital Investment and cornerstone investors on Nov 24, ’09.

AIMS AMP Capital Industrial Reit changed its name from MacArthurCook Industrial Reit on Dec 24 following a recapitalisation exercise and the appointment of AMP Capital Holdings as co-sponsor.

The recaptalisation exercise was bitterly opposed by minority unitholders and Cambridge Industrial Reit, which had bought a close to 10 per cent stake after the announcement of the exercise.

They were upset that the deal diluted their holdings severely and was too favourable to new investors as AMP, the various cornerstone investors, and then sponsor AIMS Financial Group. CIT used its units to mount a week-long campaign to get unitholders to reject the refinancing proposal. It wanted unitholders to vote for CIT to manage the Reit instead.

But just days before a crucial meeting to vote on the proposal, CIT said the Monetary Authority of Singapore had blocked its plan to manage both Reits due to a possible conflict of interest.

Moody’s upgrades AIMS-AMP Capital Reit

Re-rating follows recapitalisation exercise

MOODY’S Investors Service has upgraded AIMS-AMP Capital Industrial Reit’s corporate family rating to Ba2 from Caa1 following its recent recapitalisation exercise.
The industrial trust – which was formerly known as MacarthurCook Industrial Reit – underwent a change of name after a recent debt-and-equity-raising plan. The Reit placed out shares to new investor AMP Capital Holdings and existing sponsor AIMS Financial Group as well as other cornerstone investors. This was then followed by a rights issue and a new term loan.

Concluding a rating review that was started on Nov 9, Moody’s said that the rating outlook for the Reit is stable.

‘The upgrade reflects AIMS-AMP Capital Industrial Reit’s remarkably improved liquidity profile and capital structure following the successful completion of its recapitalisation plan and refinance of the maturing Singapore dollar loan,’ said Moody’s analyst Kaven Tsang.

The Reit has applied part of the proceeds from the issuances to complete its acquisition of a building (4A International Business Park) and will also acquire four new properties from AMP.

‘These new properties are cash flow generative and will to some extent support its income diversification and debt service coverage,’ Mr Tsang added.

In addition, its liquidity profile has improved substantially, without material refinancing needs in the near term, Moody’s noted. The Reit’s debt/capi-talisation leverage has fallen to 30 per cent, from 47 per cent as of Sept 2009. The Reit’s major borrowing, a new $175 million term loan, is only due in December 2012.

But Moody’s also noted that while new sponsor AMP’s ‘established market presence and solid track record’ could benefit AIMS-AMP Capital Industrial Reit as it pursues growth and seeks new funding, AMP still needs to establish a track record in managing the Reit’s business as planned.