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How did IREIT Global's rights issue turn out for AK?

Friday, August 14, 2015

I wasn't interested in IREIT Global's IPO but I was interested in IREIT Global as it owns freehold commercial properties in Germany and has big name tenants.

So, I have been keeping an eye on it, hoping to get in at a price that I thought would be able to deliver an attractive enough distribution yield that is more sustainable at the same time.

When IREIT Global planned a rights issue, I thought it was an opportunity to have a nibble. 

I came up with a strategy which I shared here in my blog on 3 July 2015.

The plan was to possibly secure a distribution yield greater than the 8% promised at IPO when units were offered at 88c a piece. 

The plan involved the application for excess rights to round up odd lots.

To read more about the strategy, please see related post at the end of this blog post.

A conversation with a reader a year ago.

Anyway, I bought 3,500 units from Mr. Market at a price of 81.5c per unit. The 45 for 100 rights issue meant that I would get 1,575 nil-paid rights. Subscribing for these rights units would give me a total of 3,500 + 1,575 units = 5,075 units.

If I were to apply for excess rights, I should be successful in rounding up odd lots. 

At that time, I thought I would be allotted enough excess rights to have a total of 6,000 units.

I would then get an average price of 67c per unit (i.e. $2,852.50 + $1,170 = $4,022.50/6,000). 

This would be just 1c higher than the 66c per unit I said would probably get us an 8% distribution yield, based on my estimates.

Well, I overlooked an important development. We are no longer in the days when 1 lot was made up of 1,000 units. 

For a while now, 1 lot is made up of only 100 units. What a mess!

So, theoretically, to round up my (now) odd lot of 75 units, I could be allotted only 25 excess rights to make a grand total of 5,100 units for me! 

That would really throw a spanner into the works as that would give me an average price of 70.6c per unit which is some 4.6c higher than 66c! 

It would mean an estimated distribution yield of only 7.48%!

Looking at the unit price of IREIT Global today which is 68c would have only made it worse.

Quite fortunately, this happened:

So, I was allotted 1,225 excess rights and I now have 6,300 units in total. Average price? 66.08c! This gets me much closer to 66c per unit which I estimated last month would probably mean an 8% distribution yield.

The Euro has strengthened against the S$ in the last month or so. It was 1 Euro to S$1.50 in early July and, today, it is 1 Euro to S$1.55. 

That is good news for me as it would help with delivering a higher distribution yield on my investment.

Everything else remaining equal, if IREIT Global's unit price should decline to 66c or lower, I could add to my investment in the REIT.

Related post:
IREIT: My strategy in its 45 for 100 rights issue.


Whowillbe said...

Hi AK,

I managed to get 1250 out of 5050 excess rights that I subscribed for.

AK71 said...

Hi Whowillbe,

Seems like they are quite fair. Other than rounding up odd lots, they gave everyone who wanted more excess rights 1,200 excess rights. Of course, our sample size now is only 2 people. ;p

qook said...

I didn't try the rights issue trick but I vested anyway as I quite liked their tenant profile. If share price declines from here, I will probably be looking to add as well.

AB said...

Congrats AK, for getting in at a lower price :)

AK71 said...

Hi AB,

Thank you. :)

I overlooked an important detail. So, I am lucky that the strategy worked out well this time. ;p

AK71 said...

Morning BUY order for IREIT Global at 67c a unit filled.

AK71 said...

Overnight BUY order for IREIT Global at 66c a unit filled.

AK71 said...

Regular readers know that AK is of the opinion that saying rights issues are just taking money back from shareholders is being simplistic. We should examine the reasons for the rights issues.

Rights issues can be opportunities for investors to accumulate at lower prices and there were many examples which have been shared here in ASSI. IREIT is another.

See Press Release (10 Aug 16):
IREIT Global’s 2Q 2016 Distributable Income Rose 47% Year-on-Year and Delivers 3.18 Singapore Cents DPU for 1H 2016.

This translates to annualised distribution yields of 8.95% to 9.63% based on my entry prices.

AK71 said...

IREIT Global announced on 5 October that Tikehau Investment Management has agreed to acquire 80% of the issued shares of its manager, and will be looking to expand the REIT’s investment mandate beyond just office properties.

The share purchase agreement will see both the CEO and CIO of IREIT Global’s manager resigning, but leaving only after a transition period.

The remaining 20% stake in the Singapore-listed REIT’s manager will be held by Chinese tycoon Tong Jinquan-linked Shanghai Summit Pte Ltd, and Dolphin Two Pte Ltd.

However the share purchase agreement will require approvals from IREIT Global’s lenders, and the Monetary Authority of Singapore (MAS).

Tikehau has indicated that it intends to change IREIT Global’s investment mandate to cover all commercial income-producing properties, including offices, retail and industrial properties, across Europe should the share purchase agreement proceed.


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