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Regular readers know that I much prefer rights issues compared to share placements as long as the funds raised go towards increasing income for unit holders. Rights issues allow all unit holders to participate in the enlarged capital base of the entity and to share in the benefits, ideally.
The last time AIMS AMP Capital Industrial REIT had a rights issue was in 2010. At that time, it was a 7 for 20 rights issue at a price of 15.5c per unit (post consolidation would translate to 77.5c a unit today). It was a pretty straightforward proposal back then because the funds raised was for the purchase of a property.
We could compare the NPI yield of the property to be purchased and the existing NPI yield of the REIT's portfolio and decide if it was a good idea. If the NPI yield of the property to be purchased was higher than the NPI yield of the existing portfolio, which it was back then, quite simply, we have a green light.
However, there is always the question of price. Yes, the price has to be right, as always.
The 7 for 40 rights issue which is now being proposed by AIMS AMP Capital Industrial REIT is at a price of $1.08 per rights unit. At the closing price of $1.415 per unit today, a theoretical ex-rights price (TERP) of $1.365 has been calculated.
So, buying at $1.08 represents a discount to the TERP. This is more important than the discount to the closing price. Why? We want to be forward looking since we are investing for the future and not in the past.
Imagine that after the rights issue, given the increased number of units in issue, each unit should proportionally be trading at $1.365 if all else remain equal. If we were then offered to buy more units at $1.08 per unit, would we bite? Of course, we would. That represents a discount of about 20% from the future market price, in theory.
Now that we have resolved the issue of price, we come to another important consideration and that is one of value.
Value could be enhanced but value could also be destroyed. I said that the rights issue of 2010 was pretty straightforward. It was to buy a yield accretive property. The rights issue this time is not as straightforward.
80% of the funds raised will go towards:
1. AEIs which include re-developments to possibly max out plot ratios.
2. Development projects (or green field projects, I suppose).
3. Third party acquisitions (i.e. completed properties).
20% of the funds will go towards:
4. Paying down borrowings.
5. Working capital.
6. Payment of fees related to the rights issue.
This is where I see a bit of a problem. I like the fact that 80% of the funds raised will go towards measures which would possibly improve income and, ideally, distributions for unit holders. However, the lack of details make it impossible to calculate the benefits from the proposed rights issue. So, we really must have faith in the managers to do the right things.
In an earlier decision to add to my long position in Croesus Retail Trust, I decided to reduce my investment in Sabana REIT while keeping my investment in AIMS AMP Capital Industrial REIT intact because I felt that the latter was a better investment with a stronger management who have their interests more aligned with unit holders'. Following that line of reasoning, I will take up my allotment of rights units and also apply for excess rights.
When the nil paid rights start trading, unit holders have the option of selling them away if they do not wish to fork out money. A fair price for the nil-paid rights would be, assuming market price stays at $1.415 a unit, $1.365 - $1.08 = $0.285. This more than compensates for the 15% dilution which a unit holder who does not wish to subscribe to the rights issue would have to suffer.
If you have never encountered a rights issue before, it could be a good idea for you to read some of my older blog posts on past rights issues. See related posts below. Nice little activity for the weekend.
See presentation slides: here.
Related posts:
1. AIMS AMP Capital Industrial REIT: Rights issue.
2. First REIT: Rights issue.
3. LMIR: Proposed 1 for 1 rights issue.
Bloggy Award
86 comments:
Hi AK, do you blog before, how to participate the right issue? Same as IPO, just go to ATM or Internet banking? Thanks.
Btw, when REITs all go after money, eg. right issue, bonds. This means they need more money rather than ability to pay out more, means we can't expect higher DPU in general?
Hi AK,
This is my 1st time encountering rights issue. Based on 7 rights to 40 existing units, if I have 10 lots, am I entitled to buy 1750 shares? or is the minimum required to have 40 lots?
Also, how to participate in the rights? Will SGX send my letter (similar to DRP) or must I contact my broker?
Thanks
Hi Ah John and Paul,
I have blogged about rights issues many times before. Read up on some of the past rights issues I have blogged about first. Also, read the comments. Good learning experience, I am sure. ;)
You might also want to go to my blog's right sidebar and read the blog posts on rights issues. These are found in the box labelled "Invest in S-REITs".
I think you will find reading these enlightening.
In the meantime, wait for the package with instructions from SGX on the said rights issue. :)
If I am not wrong, there will be a letter sending to all shareholders on how to subscribe to the rights issue, just like the DRP. Luckily I didn't jump in and buy Lippomalls, good that I can use the bullets for this right issue instead. :P
Let me figure out, if I have 1 lot of AIMS, the 7-for-40 rights imply that I should calculate it as 7/40 x 1000 shares = 175 rights shares? I am poor in maths, pls correct me on this. -.-
Hi INVS 2.0,
Indeed. Anyone investing in REITs should always be prepared for the possibility of a rights issue and we should welcome rights issue if they add value to our investment. :)
You are right in your calculations. Simple proportion. ;)
Some are worried about ending up with odd lots, naturally. Solution: Apply for excess rights to round up odd lots.
Application for excess rights to round up odd lots will have priority over others. So, no worries.
Yes, wait for the package with instructions regarding the rights issue. Usually, I just go to an ATM to pay for my rights units + excess rights before the deadline. It is quite easy. :)
Hi AK,
With recent development what would make you still think that the AA REIT is better than REIT with stronger sponsor like MIT, at almost equal yield, though higher gearing but having portfolio with longer average land lease?
Would you think the asset value could be in certain extend possibly manipulated or inaccurate gauge for it the property's intrinsic value?
What happen to REIT like MCT which having rental revision at 30 over percentage for the past two years with no rental support at all, should eventually see its NAV exceeding its current market price at the end FY.
How important is the booked NAV in your selection of investment?
Appreciate that you can share your opinion. Many thanks.
Casey
Hi Casey,
There are no specifics as to what AA REIT is going to do with the funds raised but I believe that maximising the plot ratios of some properties is going to happen. This is what they have done to a couple of properties in the recent past with very good results.
Although you have raised a number of points, you did not mention management quality. This is of course not easy to grade. It is not a number, after all. However, looking at how far the REIT has come against all odds and without the advantage of a strong local sponsor, I give the management of AA REIT the thumbs up.
I would also like to say that it does not mean that if there is a strong sponsor, there won't be any rights issue or share placements. I remember Mapletree Logistics Trust having a rights issue because its gearing was more than 43% at one time. So did Keppel REIT (formerly K-REIT). Also, Ascendas REIT continually have share placements to fund growth.
There is almost no other way for REITs to grow since they distribute most of their income to unit holders and do not have much retained.
I don't know if properties have intrinsic values but market values are determined by market forces. In this respect, I believe that we want to remain cautious regarding industrial properties over the next 2 years, at least. A larger than average supply is on the way and this could depress prices.
I will not comment on MCT because I am not familiar with it but I will say that we have to wonder if they could have another 2 years of rental reversion of more than 30%? What is the probability? This is where you have to do more research.
Buying a property below valuation is always attractive. It could be a HDB flat or a commercial property. It is the same. I don't usually like to buy a property above valuation unless there is something uniquely appealing about it. So, NAV of a REIT is definitely something I look at.
With the contribution from optus centre from Feb 7, 2014 onward, dist might not be badly hit even with the right issue, even in short term, I think
Hi Poh Soon,
Good point. :)
Hi AK,
Thanks for sharing your view.
Could you elaborate why do you think the AA REIT management has done a better job than those of MIT. I tried to make comparison between them:
2011 May -> 2014 Feb
AA
Price: up 35.9%, 1.03 -> 1.40
DPU: up 10% 0.10-> 0.11
NAV: up 13% 1.35 -> 1.52
MIT
Price: up 23.6%, 1.08 -> 1.34
DPU: up 25% 0.08 -> 0.10
NAV: up 16% 0.95 -> 1.11
The best would be better?
Hi AK,
Thanks for pointing me to the right direction. I managed to dig out an old blog post in "Bully the Bear" regarding right issues (http://bullythebear.blogspot.sg/2011/01/how-to-get-most-out-of-rights-exercise.html), which mentioned some possible theory on rights allocation.
Based on the priority given to odd-lot rounding, for 1 lot of AA reits, will I be better to apply
for 825 excess rights shares compared to 1000 excess right shares if my intention is to round up?
If the hypothesis is true, applying 1000 shares of excess rights shares will have higher chance of being allocation 825 shares, compared to being allocated 1000 or 0 shares?
Many thanks!
Hi AK71,
Sorry noob here on rights issue. When can I start applying for the excess rights at the ATM as I have the mother share.
Hi Casey,
Well, I wouldn't say that one is better than the other since I don't track MIT like I do AA REIT. So, my last comment was purely based on my experience with AA REIT and how the management has, in my opinion, done very well without having a strong local sponsor which, of course, MIT has. :)
Hi Paul,
My own belief is that if we need 825 excess rights to round up odd lots, that is all we need to apply for.
Applications for excess rights to round up odd lots will always have priority over others.
Of course, you could apply for more excess rights than you need to round up odd lots. There is no reason why you cannot do that. :)
Hi Kelvin,
Whoa! Hold the horses. Haha.. :)
Wait for the package with instructions which CDP will be sending out. No hurry. :)
In the meantime, you could refer to the time table which I have done a print screen of and attached at the end of this blog post. Go see the presentation slides too. :)
Hi AK,
Here is a little off beat question for you. My assumption of the following case scenario is as such: I've got some lots bought using SRS.
As such, would my rights be bought using SRS or cash? I assume its cash.
If its cash, then I'll have a most lots in SRS and some lots in cash? Messy~~~~! :(
Hi Solidcore,
A friend just SMS me on this topic actually. He told me that SRS has limitations. He cannot apply for excess lots with his SRS account.
However, for whatever allotment you are getting for the units you bought using your SRS account, you have to use money in your SRS account to pay for the rights units. So, I hope you have spare cash in your SRS account.
Hi AK,
Thanks for your advice! :) So sad to hear that I can't get excess so I'll end up with odd lots. Meh...
I've got friends who also got excited about this piece of news. They dont have any lots and were wondering if its still feasible to buy some lots on Monday and get the allotted rights. But their concerns were if there could be immediate capital loss(?). Since I'm new to rights, I'm also not in the position to advise them.
Would you be willing to share your take on this?
Hi Solidcore,
Capricorn is right that you should check with your broker on Monday to be sure. :)
If your friends are not current unit holders of the REIT but are buying just so that they can have access to the discounted rights units, it will work, of course.
However, they really have to ask themselves why they want to do this.
Are they doing it because they want the passive income or if they are doing this for a quick punt. If it is the latter, of course, there is a chance it could turn out badly. ;)
Hi AK,
Many thanks for replying. Appreciate it and have a splendid Weekend ahead haha huat huat on yr croesus
Hi Kelvin,
I am happy to hear that you huat on Croesus Retail Trust. :)
Have a good weekend too.
Hi AK, if i read correctly, we need to buy more or sell some of mother shares to avoid rounding up of rights or odd lot of right shares by 19 Feb 2014 ?
Hi Cory,
You can do that but you can also simply apply for excess rights to round up odd lots when the time comes. Wait for the package from CDP. It will provide you with instructions.
I wonder how custodians like Stanchart works for rights exercise. Shares not park with CDP. Hmmm...
Hi Howard,
They should contact you. Some of my investments are held by Kim Eng and they always contact me when there are rights issues or DRPs, for example. :)
Hi all,
I bought 5 lots of AIMS AMP over POEMS on 13 Feb 2014. Shares not reflected in my CDP Account yet. Would you know if I would be eligible for the rights issue? Otherwise should I sell to avoid losses as the shate price would drop right?
Sorry am newbie in this just started trading less than 1 month ago. Thanks much.
Hi AK,
If I'm not the shareholder of AIMS now, am I able to purchase the rights during trading period? If can, what is the calculation like? eg: buy 40 lot rights, entitled 7 lots AIMS mother share? Am I right?
Thanks.
Hi Julian,
I am quite sure you will be eligible for the rights units. You are a Singaporean and your registered address with CDP is in Singapore, I assume.
If you are still in doubt, the best thing to do is to give your broker a call. :)
Hi AK82,
Well, you could buy the nil-paid rights when they start trading end of this month. The last day for trading nil-paid rights is 7 March, iirc. Basically, you will be buying from unit holders who do not wish to pay $1.08 for the rights units.
You will, of course, have to pay the seller's asking price for the nil-paid rights and then, go to an ATM (of a participating bank) to pay $1.08 per share to have them become rights units.
You will not, however, be eligible to apply for excess rights as you are not an existing unit holder.
Applying excess rights to round up to the nearest lot, but we also have to pay for the shares of excess rights? So effectively I am buying another new lot again (rights + excess rights).
Hi INVS 2.0,
Yes, at $1.08 a unit. :)
And if you think about it a bit more, there will be some who will benefit from this more than others in terms of yield, post rights. For example, someone who currently holds only 1 lot compared to someone who holds 40 lots. ;)
My concern is the amount of nil-paid rights i will receive if i do not hold by 40. If i have 39 lots, i will only have 6 nil-paid lots ?
Hi Cory,
It will be pro rata. Like I said, you can apply for excess rights when the time comes to round up the odd lots. In your case, 39 lots gets 6.825 lots. You apply for 175 excess rights to round up to 7 lots.
Hi AK, would I be entitled to the excess rights if I were to purchase the shares of Aims Amp Reit tomorrow?
Also,could you advise on how do I apply for Nil excess rights?
Thanks
Hi Wee Leong,
AIMS AMP Capital Industrial REIT should be trading Cum Rights from tomorrow. So, yes. Check with your broker. :)
You could buy nil-paid rights in the open market when they start trading end of this month. Last day of trading is 7 March.
If you are wondering how to apply for excess rights, you do it at the ATMs of participating banks when you make payment for your rights units. You will receive a package with instructions from CDP if you are eligible. :)
Hi AK,
Thanks for the explanation. If I were to buy 10 lots of Aims Amp Reit tomorrow, I would be entitled to 7/40 x 1000 of shares under rights issue. However, I would be purchasing the 10 lots at its current price of $1.40+
So am I right to say that I should purchase lesser lots, lets say 5 lots in this case. So that I would get to purchase the rights issues at $1.085 and have priority over others when applying for excess rights? Is there a possibility of applying for 10 lots of rights issues when I only own 5 lots of the shares?
Thanks
Hi Wee Loong,
The finer details, I wouldn't be in the know but I do know that any application to round up excess rights will have priority over others.
So, if you have 5 lots, you will be given 875 rights. You will need to apply for 125 excess rights to round up to avoid an odd lot. This will have priority.
You can apply for 10,125 excess rights, if you like but note that the 10,000 excess rights you apply for will not have priority and will depend on availability.
If the rights issue which happened in 2010 was anything to go by, larger unit holders could be given a bigger share of available excess rights beyond what is needed to round up odd lots.
Hi AK,
I have a better idea now. Thank you so much for explaining in detail. Appreciate your effort :)
" A fair price for the nil-paid rights would be, assuming market price stays at $1.415 a unit, $1.365 - $1.08 = $0.285. This more than compensates for the 15% dilution which a unit holder who does not wish to subscribe to the rights issue would have to suffer.
"
Hi AK,
I am trying to learn over here.
1. how did you derive the 15%?
2. how did you determine that $0.285 is more than enough to compensate the 15% dilution?
Hi Wee Loong,
I am glad you have found my blog helpful. I hope you will pass it on and help others too. :)
If we can help everyone improve on their financial security, life will be better for all. :)
Hi JLee,
Simple proportion. :)
Where there were 40 units in issue, now there are 47. So, assuming a $1 value was backing those 40 units, value per unit was 2.5c. Now, that $1 value has to back 47 units which means value per unit is 2.12c. Value per unit has dropped 15%. 15% dilution. :)
If someone decided that he did not wish to pay for the rights units, he could sell them away. However, he would suffer a reduction in income by 15%. The projected DPU for 2014 is 11c. So, post rights, DPU would lower to 9.35c.
For someone holding 40 units, he would be losing 66c in annual income but if he should be able to sell away his 7 nil paid rights at 28.5c each, that is a total of 199.5c or the equivalent of 3 years of lost income due to dilution. I think this is fair enough compensation.
Hope this helps. :)
Hi AK, is it right to expect that the share price should ideally trade at TERP of $1.365 on the XR date on 20 February and the share price decline currently is due to this adjustment?
Hi AK,
I'm a foreigner and not living in Singapore now though I put Singapore address as my registered address with CDP. Will I still eligible for the right issue?
Thanks
Hi Yong Ho,
Yes, I believe that Mr. Market has begun to price in the 15% dilution now that the REIT is trading cum rights (CR).
Hi Nita,
I was just informed by a reader who is a PR but not staying in Singapore that she is not eligible. I think you might want to call your broker and check to be sure.
Hi AK,
I've contacted sgx and they said that in order to participate in right issues, account holders need to maintain a local mailing address in Singapore. And, we can complete a letter of authorisation for our families or friends to execute and submit the completed application form on our behalf.
I hope the info will help others like me.
I guess in this case, it's much easier to sell the right in the market, no?
Hi Nita,
Hey, thanks for sharing this bit of information. :)
Yes, you can choose to sell the nil-paid rights in the open market once they start trading. This will be done through your broker, I guess. :)
Thanks AK! that is 10/10 answer.
Hi JLee,
Wah! You were testing me? And I thought you really didn't know the answers. Kena cheated. -.-"
Hi Capricon,
See my earlier reply to JLee. :)
No case study. I have been blogging a bit too much and my brain needs a break. ;p
Hi AK,
Thanks for the post. Could I just clarify with you, if I would want to be eligible for the rights, would I have to buy in before "Last day of Units traded “cum-rights” for the Rights Issue" (ie 19 Feb 2014), or "Rights Issue Books Closure Date" (ie 24 Feb 2014). Abit confused between the 2 of them as it's my first time experiencing a rights issue! Thank you in advance
Hi Joseph,
I assume that you currently do not own any units in AIMS AMP Capital Industrial REIT.
If you wish to be allotted rights units which you would have to pay $1.08 per unit for, you want to buy units of the REIT's when it is still trading cum rights (CR). Once it goes XR, any purchase will not be alloted the rights units.
Hi AK,
Although I have gone through the LMIR rights issue, it was a 1 for 1. This 7 for 40 is really confusing for me, esp if we don't hold 40 lots of AIMS now. If we have only 10 for e.g., that would give us 1.75 lot of rights share. Using 1.75, how many share can we buy at $1.08? tried to look through your old posts of the first reit, aims, lmir rights issue but couldn't find the answer. can give me a lesson here? :) Thanks.
Hi Dreamer,
Read my replies to comments by Wee Loong above. ;)
Hi ak, what is the diff between buying nil paid rights once it starts trading vs applying for excess rights? Is excess rights cheaper than buying nil paid?
Hi Ray,
Please see my reply to AK82 above. :)
Hi AK,
I have a question on calculation of TERP. Do you see it as fixed or it floats with the unit price post-announcement but cum-rights? To illustrate, should it be based on $1.415 (pre-announcement price) or $1.38 (one of the low price from yesterday post-announcement)? I am thinking that it should be based on $1.415 as this is how the market valued the unit without the effects of the announcement. If we used the CR price (which is post-announcement), this price is already taking into consideration the rights issue and hence is pricing in the effects already. Not sure if this clear... Thanks.
Hi AK,
So existing AIMS shareholders get nil paid units, which they can sell off. If they don't, they can pay $1.08 for every 1000 nil paid rights to convert into 1 lot of AIMS share?
So if I have odd lots, should I buy nil paid off the market or should i apply for excess rights?
Applying for excess rights will be at what cost? Sorry, if you have already said this somewhere else but I couldn't find it.
Hi Pearl,
I wouldn't be bothered by the TERP. It is 'theoretical', after all. ;)
There is nothing sacred about the TERP. Of course, the TERP will be different depending on whether we use $1.415 or $1.385 when the counter is trading CR.
What is more interesting to me is whether this rights issue is likely to deliver more benefits to unit holders. :)
Hi Ray,
Yes, you will be allotted rights based on the ratio of 7 for 40. These are nil-paid and if you wish to keep them, you will have to pay $1.08 per unit and they become regular units in the REIT. If you do not wish to keep them, you could sell them away when nil-paid rights start trading on 27 Feb.
If you have an odd lot of nil-paid rights, you could apply for excess rights to round up the odd lot like what I told Paul Chua in an earlier comment. You will have to pay $1.08 per excess right.
Hope this helps. :)
Hi AK, appreciate ur patience in answering all the questions (even repeated ones).. Thanks! :D
Hi Paul,
You are welcome. I am happy to share what little I know. :)
Hi AK,
It surely helped :) Thanks for the patience in answering.
One last question.
Say we have only 10 lots of AIMS, that would give us 7/40*1000*10 = 1750 nil paid rights (right?)
My options, if I want to round the odd lots, would be to buy another 250 from the market. But can I also sell off 750 in the market? Can we sell odd lots i.e. less than 1000 in the market?
Thanks :)
Hi Ray,
In the example you gave, you do not need to buy 250 nil-paid rights from the market. Apply for 250 excess rights instead.
Applications for excess rights to round up odd lots will always have priority. Do this when paying for your allotment of rights units.
Of course, you could choose to sell away the 1,750 nil-paid rights if you do not want to have the rights units.
I do not know if an odd lot counter would be set up for the nil-paid rights. Just have to wait and see. If it is not available, you could call your broker to sell them in the odd lots market.
Hi AK, a bit confused. What's the due date to accept the rights issue? 24 Feb or 13 Mar? Haven't received any form from CDP yet.
Hi Ah John,
Last date to accept and pay is 13 March. Refer to the time table which I have cut and pasted at the end of this blog post. Quite clear, my friend. ;)
The package from CDP will come. Still early. :)
Hi AK, Do you mind explaining what does the below mean? Realised that it is not in the timetable you have cut out. Thanks!
First day of Units traded “ex-rights” for the Rights Issue : 20 February 2014
Rights Issue Books Closure Date : 24 February 2014 at 5 p.m.
Hi Wee Loong,
Up until yesterday, anyone who bought into AIMS AMP Capital Industrial REIT was buying cum rights (CR) which means they would get rights units (nil-paid).
From today onwards (20th Feb), the REIT is trading XR which means anyone buying now will not get any rights units.
Book closure is of no interest to us as investors. It is an administrative date for the REIT manager.
Hi AK,
No wonder you didnt include in the timetable. Thank you for explaining once again! :)
three cheers for AK lao shi. :)
Hi Wee Long and Ray,
Happy to share what I know. However, I definitely do not know everything. So, let us all share what we know and learn together. :)
Hi Capricon,
Thanks for sharing the good news. :)
Well, more accurately, it was AIMS Property Securities Fund but it doesn't matter, does it? ;)
That is more than $1.1 million. That is what I call putting money where the mouth is. ;p
Until today I still haven't received the CDP instructions. This is so frustrating! >:(
Looks like the rights issue is hot! Not much chance for excess rights? Hope manage to round up the odd lots ...
AIMS AMP Capital Industrial REIT Management Limited, as manager of AIMS AMP Capital Industrial REIT (“AACI REIT”, and the manager of AACI REIT, the “Manager”), wishes to announce that valid acceptances and excess applications for a total of 260,224,984 Rights Units (as defined herein), representing 281.3% of the total number of 92,512,712 new units in AACI REIT (the “Rights Units”) available under the underwritten renounceable rights issue (the “Rights Issue”), were received as at the close of the Rights Issue on 13 March 2014 (the “Closing Date”).
Hi boonchin,
Thanks for sharing this.
Crossing fingers. ;)
Hello Mr AK,
A noob question :
Can I ask when the lots that we've applied and paid for ( I already hold a certain number of lots so I was entitled to x number of shares, which I purchased ) be reflected/added to our existing balance of AIMS AMP shares ?
It was previously visible in my CDP account listed as "AIMS AMP REIT R", but I checked my CDP accout today and it has disappeared.
Thank you !
Hi blauereiter,
I believe that the new units will be available in your account on 21 March (Friday). :)
Erm, curious. All I only had round up excess. No excess excess. Does anyone else had better experience than me ?
Hi SnOOpy168,
This rights issue was too small and too popular. ;p
i didn't even get the round-ed up rights :( so i forfeited my odd lots rights..
Hi Ray,
I think you should have accepted the allotted rights and apply for excess to round up. I think you would have been successful.
i did. my shares are bought through Stan Chart. So i gave me instructions to them that I want to exercise all my allotment and also ask for excess to round up as well for excess. but i only got the alloted (rounded down). Hence the odd lots didn't get exercised.
Hi Ray,
Hmmmm... That is pretty odd. I don't know how Standard Chartered does things. -.-"
Hi Capricon,
This is because the manager of the REIT paid dividends to its shareholders using a transfer of units. This was an off market transfer at S$1.375 a unit.
The shareholders could sell these units to realise the dividends in cash, if they so wish.
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