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Nil-paid rights and excess rights. (Case study: My strategy in IREIT's 45 for 100 rights issue.)

Friday, July 3, 2015

IREIT's 45 for 100 rights issue is priced at $0.468 per rights unit. Links to the full details of the rights issue have been provided at the end of this blog post. 

So, I will only blog about the more interesting bits and my strategy.

As I am investing for income, I am first and foremost interested in the DPU, post acquisition. It is important to note that the DPU hardly improves, post acquisition.

An important consideration in IREIT's case is the foreign exchange rate, specifically, between the EURO and the Singapore Dollar.

In my last blog post on IREIT in February this year, the exchange rate was 1 Euro to S$1.54. Now, it is 1 Euro to S$1.50. So, the Euro has weakened a lot from 1 Euro to about S$1.70 from the middle of 2014 when IREIT had its IPO.

Read the notes. Read the details in the announcement.

Back in February, I also said that to get an 8% distribution yield, the unit price had to be 75c.
The promised 8% yield based on the IPO price of 88c per unit was no longer possible.

Based on the understanding that the DPU would hardly improve post acquisition and that the Euro has weakened since the REIT's IPO last year, if we believe that 75c per unit now is what makes investing in IREIT worthwhile, then, the theoretical ex-rights price (TERP) has to be 66c or so.

For investors who got in at the IPO price of 88c and participating in the rights issue at $0.468 per rights unit, their TERP is 75.2c, not taking into consideration any successful excess rights application. 

They, most likely, would not get an 8% distribution yield even now.

For those who have yet to invest in IREIT, however, they could get a distribution yield in excess of 8% if they play their cards right. 

This is where I talk to myself about my strategy.

This rights issue is renounceable. This means that nil-paid rights will be traded in due course and there will always be people who cannot or will not take part in rights issues. 

They could sell their nil-paid rights.

If nil-paid rights in this case should be sold at a price of 19.5c or less a piece, buying them would give me a TERP of 66.3c or less when I exercise them by paying $0.468 per rights unit. This will give me a distribution yield which I find more acceptable and, perhaps, more sustainable.

For those who don't know, nil-paid rights are bought or sold in the stock market like regular stocks. 

We could sell our rights entitlement or we could buy from someone who is selling. These are nil-paid rights.

I could also buy some IREIT units while they are still trading cum rights (CR). The motivation is not to be entitled to the rights units as they will not do anything to improve distribution yield. 

The motivation is to be eligible to apply for excess rights.

Only eligible shareholders are allowed to apply for excess rights. Application can be made at ATMs of participating banks before the closing date.

Getting more excess rights will give me a higher distribution yield. This is, of course, due to the fact that excess rights will have the highest yield. 

The cost, in this case, is only $0.468 per rights unit. The yield is estimated at 11% or so.

Specifically, my strategy is to buy enough IREIT units so that the total number of units plus my entitled rights units will allow me to get more guaranteed excess rights units. 

Guaranteed? How so?

For example, buying 2100 units would entitle me to 945 rights units. 

Unitholders with odd lots will have priority to get excess rights units which means 955 excess rights units are in the bag in this example.

The average distribution yield in this example would work out to be approximately 8.3% if the 2100 units were bought at 82c a unit, assuming that excess rights application for anything more than what was required to round up odd lots failed to be successful.

Being opportunistic, with this strategy, IREIT makes a decent enough investment for income although a gearing level of 43.7% after all this is over suggests that this might not be the last time we see some fund raising activity from IREIT.

Full details of rights issue:

1. Announcement.
2. Presentation.

Related post:
IREIT: What is a more realistic yield?

Earlier examples of rights issues:

1. First REIT: A simple way to a double digit yield.
2. AIMS AMP Capital Industrial REIT: XR.


Whowillbe said...

But isnt a lot now 100 instead of 1009?

Whowillbe said...

I mean 1000

AK71 said...

Hi Whowillbe,

To me, 1 lot is still 1,000 shares. -.-"

100 shares is 1/10th of a lot. ;p

Whowillbe said...

Well so wouldnt making up an odd lot be making it up to 100 and not 1000 as SGX has now reduced the lot size.

Pardon me if I got it wrong.

AK71 said...

Hi Whowillbe,

I am so stunned like vegetable! It could indeed be the case. -.-"

I have no experience with rounding up of odd lots after the change was introduced. So, I will see how this pans out.

Good point. :)

cookie said...


when is the date and also last day to convert the rights to share?i cant seem to find it.


la papillion said...

Hi AK,

That's the question that nobody knows. Let us know whether the rounding of the odd lots is up to 100 or up to 1000 'old' lots. I suspect it's the former, and that will make cashing in on rights not such a good deal anymore. Let us know pls :)

yanhan said...

It did not work for me during the AIM AMP Cap REIT's rights issue. I bought 1000 units and was entitled to 350 units. I applied excess rights units to round off my holding to the '000s. However, I only received 500 units.

AK71 said...

Hi cookie,

I will wait for the counter to go XR and receive the instructions package from CDP after the nil-paid rights stop trading. No worries in the meantime. ;)

AK71 said...

Hi LP,

Indeed, if rounding up of odd lots means to the next 100, then, the only two ways left to make such rights issues worthwhile (i.e. to get a higher yield) are to buy the nil-paid rights cheaper and to be lucky in getting more excess rights. -.-"

AK71 said...

Hi yanhan,

That is very odd but thanks for sharing your experience here with us. :)

Capricon said...

Recent keppel infra is rounded to the next 100. :(

In my case, therefore that might be the same for IREIT, unless very much under subscribe.


AK71 said...

Hi Capricon,

Thanks for sharing your experience. This 100 shares per lot change certainly has some unforeseen ramifications. -.-"

Unknown said...

Yes . The recent Keppel Infrastructure Trust excess rights application round up to 100s only not 1000s. Hence buying 2100 CR IRETs shares will get the 945 Rights. But applying for 955 excess rights may not be guaranteed if it's round up to tradable lots of 100s shares only. Cheers

Unknown said...

Hi Ak..

Thanks for the sharing.. but can you please help me to understand better what does "buy the nil-paid rights cheaper" mean?

Sorry of my ignorance as I am new to this.. :)

AK71 said...

Hi Xi Rie,

Here is an example from 2010 when First REIT had a rights issue:

1. First REIT: Rights issue.
2. First REIT: Nil-paid rights start trading.

Read the blog posts in sequence and I hope things are clearer then. ;)

Sanye ◎ 三页 said...

Strange, in the recent Keppel Inf Tr case I got excess to round up to 1000. Me plain lucky? :P

AK71 said...

Hi Ronnie and Sanye,

Thanks for sharing your experience with us here. :)

I hope I will be lucky like Sanye in IREIT's rights issue. ;p

qook said...

Hi AK, what is the last date to buy ireit with the rights? I can't seem to find it on the prospectus. Is there a difference if I buy it with the rights or after, presuming that I don't try for the extra rights? I'm presuming that in a perfect world, the share price of ireit will fall to reflect the rights issue right after the rights are issued? I don't have much experience in rights issues and not really sure if I'm understanding is correct.

AK71 said...

Hi qook,

IREIT has gone XR today. So, anyone buying today will not get any rights units. IREIT's share price fell today because of this. So, your line of reasoning is right.

You might want to read my past blog posts on First REIT's rights issue which happened a few years ago. I hope they help a bit in your understanding of rights issues. :)

FoodieFC said...

Hi AK,

I have no experience in rights issue. Never encountered this since I started trading 3 years ago.

I am wondering if you know how do we make payment if we decide to take up the offer? I am using poems (philips capital) platform.

Many thanks for enlightening me on this.

FoodieFC said...

Hi AK,

also, I thought that the fall in price today was due to EURO falling (due to greece voting result) since there exchange rate involve. Did not know that it was due to XR. Interesting. learning everyday!

AK71 said...

Hi FoodieFC,

Payment can usually be conveniently made at ATMs belonging to participating banks. Wait for the package from CDP which you will receive in due course if you hold IREIT units before it went XR. There will be clear instructions on what to do as well as important dates to note. ;)

FoodieFC said...


Thanks! =)

AK71 said...

From my FB wall:

Hi Ronnie,

Thank you for your support in IREIT.

The critical dates for IREITs Rights appln are as follows:

13 Jul - Commence trading of “nil-paid” Rights entitlement

22 Jul - Last day trading of “nil-paid” Rights entitlement

14 Jul – commence application of Rights Issue

28 Jul – last day of acceptance for application of Rights Issue

With compliments from IREITs Global Investor Relations Manager.

AK71 said...


Last date and time for acceptance, application and payment through an ATM:
28 July 2015 at 9.30 p.m.

AK71 said...

Hi AK.. now Mapletree is having rights issue. Would you kindly share on how to acquire those right that other ppl sell or do not excercise? I tried to find this option at ATM and cannot find. Thanks!

I think you are referring to nil-paid rights and excess rights. I wrote about them before. You might want to read this.

AK71 said...

Jonathan Ong:
Like that how do you buy or sell rights to/from other people?

Sell or buy like regular stocks. These are called nil-paid rights.

Kokkian Ng:
After buying rights from the market, what do i need to do?

Wait for package from CDP for instructions.
Package will have the deadline and which banks' ATMs you can use to convert nil-paid rights to regular units.

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