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Distribution Reinvestment Plan: First REIT and CIT.

Thursday, February 6, 2014

I received a few enquiries from readers as to what I am doing with regards to the Distribution Reinvestment Plans (DRP) offered by First REIT and Cambridge Industrial Trust. I think readers who have been following my blog for a long time would have guessed my answer.

I invest in REITs for income and I will take the distributions in cash, usually. Usually? Yes, usually and I would have said "always" if not for the single instance when I took part in the DRP of AIMS AMP Capital Industrial REIT's.

So, why did I do it then? Was I being inconsistent?

Well, if I could make money out of a situation and yet not stray from my original intention of investing for income, I am being consistent. That was the case then. So, it was a case of having my cake and eating it too. Why wouldn't I do it?

For those who are unfamiliar with the circumstances surrounding the DRP I am referring to, please read: AIMS AMP Capital Industrial REIT: DRP.



As for the DRPs offered by First REIT and Cambridge Industrial Trust now, I don't see how they are compelling offers apart from the fact that unit holders who take part will be saving on brokerage fees and other costs which would be incurred if they were to make the purchases in the open market instead.

First REIT is offering to allot new units at a price of S$1.0163 per unit. Market price is now $1.02 per unit.

Cambridge Industrial Trust is offering to allot new units at a price of S$ 0.6737 per unit. Market price is now $0.68 per unit.

As anyone can see, there is only a very slight discount to the current market price in both cases.

So, unless we are thinking of increasing our exposure to the REITs at current prices anyway for some reason, it would not make much sense to take part in the DRPs.

I have shared the reasons why I am not adding to my investments in S-REITs in earlier blog posts but those reasons are good for me. They might not be good for everyone.

Having said this, I still think that REITs are relevant investments for income and would not hesitate to add to my long positions if Mr. Market were to make me offers too good to refuse.

Related posts:
1. 9M 2013 income from REITs and more.
2. 2013 full year income from S-REITs.
3. Strategy to grow wealth and augment income.

11 comments:

Derek said...

Hi AK,

Not to mention selling/buying odd lots will be a hassle. They should issue rights instead. :P

AK71 said...

Hi Derek,

You really know which buttons to press! LOL!

Yes, I prefer to see a rights issue at the right price too. :)

paul ng said...

Hi AK71 What is your view about capital mall Asia? Is it a good entry px at 1.70.

AK71 said...

Hi Paul,

A lot about investing in CapitaMalls Asia is believing that its ambitious drive to grow its business in China will reap tremendous returns and I believe this. So, I have a long position here and I am staying invested.

Is it a good entry price at $1.70? What do you think CapitaMalls Asia is worth? ;)

Based purely on net tangible assets, I believe that CapitaMalls Asia at $1.70 a share is a bargain but it does not mean that it couldn't get cheaper. ;)

This is a growth company with a pan Asian strategy that is doing relatively well. Anyone investing in this company should have patience with at least a 3 to 5 years investment horizon.

paul ng said...

Thanks AK71.

Will monitor. Your comments are reassuring.

AK71 said...

Hi Paul,

I am only sharing my views. I don't know if I am surely right. So, take what I say with a pinch of salt. ;)

Paul Chua said...

Hi AK,

People frowns when they hear of rights issue. But isn't DRP worse? I mean, with rights you get diluted if you don't participate but at least the incentive is the significant discount to bring down your average price and possibility of getting excess rights, but with DRP, you get diluted too if you don't participate. If you do, there is marginal discount and you are likely to end up with odd lots?

AK71 said...

Hi Paul,

I don't know if it is worse. It is also a form of equity fund raising. So, it falls in the same category as rights and placements.

Personally, I won't participate in a DRP unless it offers an opportunity for arbitrage. I invest in REITs for income. So, income is my first priority. :)

AK71 said...

In an update with analysts, the manager of Cambridge Industrial Trust has articulated that the trust will be looking overseas to acquire assets in places such as Australia and Japan, which have similar risk profiles to Singapore.

Malaysia, Indonesia and China are unlikely to be on the radar as risks are higher in these economies.

The manager is also open to consolidation with other smaller industrial REITs if the opportunity is right. Cambridge is trading at a forward yield of 7.1%.

The EDGE, 5 July 2014.

AK71 said...

CAMBRIDGE Industrial Trust (CIT) reported a 2.1 per cent year-on-year slip in distribution per unit (DPU) to 1.225 Singapore cents for the first quarter ended March 31.

Source:
http://www.businesstimes.com.sg//companies-markets/cambridge-trusts-q1-dpu-slips-21-annualised-yield-of-7

AK71 said...

UNITHOLDERS of industrial landlord Cambridge Industrial Trust (CIT) shot down on Friday a fairly common proposal to let the trust manager issue new units to raise funds, in what analysts said was the first such rejection in recent memory.

Source:
http://www.businesstimes.com.sg/companies-markets/china-tycoon-puts-spoke-in-cit-wheel

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