APTT’s unit price plunged by about 50% today, closing at 16 cents a unit.
Mr. Market was probably shocked by APTT’s massive reduction in DPU to 1.2 cents a year.
I was surprised by the decision too.
However, I also applaud APTT for having the courage (and wisdom) to make such a drastic move.
Two years ago, I reiterated that APTT’s 6.5 cents DPU was unsustainable.
I also said that a more sustainable DPU was around 4.0 cents.
In my blog on APTT last month, I shaved 10% off this 4.0 cents DPU to take into consideration the rising interest rate environment.
Then, I said that unit holders could see a lower DPU at 3.6 cents in future.
Of course, it was all speculative since I could not be expected to speak for APTT.
However, I thought a DPU of 3.6c was a pretty reasonable estimate.
On hindsight, that haircut should have been more in line with what would be required for BMT instead.
With future DPU now officially at 1.2 cents, distribution yield for my nibble is now a tad lower than 4% (instead of the expected 10.5%).
What to do?
Panic and dump?
Of course not.
I bought more today.
This time, I did not nibble.
I took a big bite.
Why?
Now, with the decision to reduce DPU to a third of what I estimated to be more realistic, APTT is going to have internal resources to manage its debt.
APTT would not only have some breathing room.
APTT would have quite a bit of outdoor space too.
If well managed and I am reasonably sure it would be, APTT’s reliance on debt to continue as a business would eventually become a thing of the past (before it becomes a thing of the past itself).
At a unit price of 16 cents, we are looking at a prospective distribution yield of 7.5%.
7.5% is still a relatively high distribution yield.
I would even say that APTT is more attractive an investment now although the yield is not as high as before.
I will explain why I say this.
Basically, we have to bear in mind that this relatively high yield is going to be achieved based on APTT paying out only a fraction of its earnings.
This is unlike what happened in the past when APTT distributed much more than its earnings to investors.
Give this a moment to sink in and the picture should look better than it did before (despite the lower distribution yield).
Simply focusing on the reduced DPU would miss the big picture.
The big plunge in APTT’s unit price today might signal Mr. Market’s disappointment but I have actually become more optimistic about APTT as an investment with the massive reduction in DPU.
Still offering a relatively high yield based on an absolutely more sustainable payout ratio, as an investment for income, the risk of APTT imploding has reduced tremendously if not utterly dissipated.
Everything else being equal, any worsening of Mr. Market’s depression would only be a buying opportunity for me.
Related post:
3Q 2018 passive income: APTT.