It is clear that my complaint about the proposed rights issue is that it is not distribution yield accretive. In fact, it seems to me that the distribution yield could suffer quite significantly, post rights issue.
If I were to subscribe to the rights issue, it would be with the believe that the management will acquire more malls which are NPI yield accretive in the not too distant future using only debt. With its improved debt headroom by then, it should not be a challenge to acquire malls with a total pricetag of around S$450m using only debt.
Assuming that the purchases would have similar or slightly higher NPI yields as the REIT's current portfolio, this could improve distribution yield some 30 to 40% based on current estimates (ok, my estimates). So, subscribing to the rights issue would be akin to a confidence vote for the management.
If we believe that the global economy is going into a recession and that European entities could be recalling funds from Asia to address their financial problems back home, it is reasonable to assume that unit price of LMIR could suffer somewhat.
As there is no compelling reason in the present to subscribe to the rights issue, we could sell the nil-paid rights when they start trading in the hope that we could buy more units in LMIR at a much lower price in the event of a sell down.
Indeed, for some, they could even sell their units in LMIR when the market opens tomorrow if they feel that the proposed rights issue is a bad deal and, hence, will have no part in it.
How will Mr. Market react to the proposed acquisitions and rights issue? It is anyone's guess.
Will I subscribe to the rights issue?
Unlike the earlier rights issues of AIMS AMP Capital Industrial REIT and First REIT, it is not a screaming buy.
Unlike the rights issues of CitySpring Infrastructure Trust, it is not raising funds to strengthen its balance sheet which means it is not a screaming sell.
Anyway, it is early days yet. I will stay rational and wait for more specifics, if any. I will see if there is more information forthcoming in the promised circular and at the EGM.
For readers who have the inclination, reading my past blog posts (and comments) on other rights issues might provide a window into my thought processes:
1. CitySpring Infrastructure Trust: Rights Issue.
2. First REIT: Rights Issue.
3. AIMS AMP Capital Industrial REIT: Rights Issue.
LMIR: Proposed 1 for 1 rights issue.