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IREIT's rights issue: Why did AK subscribe?

Friday, October 16, 2020

This blog is in reply to a reader's comment.


I decided to publish it as a blog as other readers might be interested in this.


"The rights issue is dilutive because it raises more money than is required to acquire the rest of the Spanish portfolio of assets.


"Also, much of the funds raised is used to reduce gearing.


"As an investor for income, it isn't something I like and I have blogged about this view before.


"However, I like IREIT Global's freehold properties, especially those in Germany.


"I like that its interest cover ratio is very high.


"I also like that it has CDL as a strategic partner.


"With the reduced gearing, I am reasonably optimistic that IREIT Global would do better in future.





"We also want to bear in mind that IREIT Global has a relatively high distribution yield and it is probably harder to make yield accretive acquisitions.


"Like I said, I don't necessarily like the rights issue but since I like the REIT for many reasons, I think of the rights issue as a necessary evil to help it to grow.


"Now, let me add a dash of speculation.


"Once the REIT is massive enough, it should attract more investors, especially the institutional investors and that is when we might see yield compressing to 5% or lower.





"Based on the DPU post rights issue, IREIT Global could trade at 90 cents a unit or higher then.


"In the meantime, I get paid while I wait.


"I like to think that patience will be rewarded."


References:

1. IREIT Global is going to Spain.

2. REITs and rights issues: Dilutive or not?




41 comments:

Unknown said...

Hi Ak

Thanks for sharing. Does yr 90 cents means 60cents post rights? as DPU dilutive price has to be around 57 cents to get 8% yield.

AK71 said...

Hi Unknown,

Post rights, DPU is estimated to be about 4.5 cents.

Trading at 90 cents a unit would give a 5% distribution yield.

If yield compression takes place due to heightened investor interest, we could see 90 cents a unit.

Just pure speculation, of course. ;)

redponza said...

Hi AK,
Disagree that IREIT Global can trade at that 5% premium valuation.

If you take a look at Cromwell European REIT which is a REIT in indices and with institution interest, it is trading at around 7% yield.

So IREIT will not trade at a 5% yield, period.

AK71 said...

Hi redponza,

For me, it is a "if" and a "could."

It might or might not happen.

Just speculation on my part.

Whether it happens or not isn't important to me.

However, I know to never say never.

Cory said...

Aiya AK bro, mai let the cat out. I hold similar hopes ! Lucky you post this on 10/16 after rights excess is over !

Sunny said...

AK

With so much is held by CDL, how could other funds come in? Just puzzled

AK71 said...

Hi Cory,

It could take a long while before it happens if it happens.

Of course, as an investor for income, if it happens, it is just a nice bonus. ;)

AK71 said...

Hi Sunny,

Well, AT Investments Limited found a way in. ;)

There could also be placements instead of rights issues in future.

Eddy said...

Thanks AK. Hopefully IReit can and will become like another CRT (Croesus Retail Trust) that consistently payout good dividends annually and ultimately being privatized at a decent price. πŸ˜„

AK71 said...

Hi Eddy,

I hope IREIT Global does not get delisted like Saizen REIT, Croesus Retail Trust, RHT Health Trust and, even, Accordia Golf Trust.

It is hard to find replacements. ;p

Eddy said...

True that AK. “)
Thanks to your analysis and talking to yourself. The CRT’s capital gained and dividend over the years have fully funded my daughter (graduated last year) her 3-yrs overseas (UK) university and lodging expenses. A timely bonus πŸ‘πŸΌ

AK71 said...

Hi Eddy,

I am so happy to hear that.

Congratulations!

Good news in more ways than one. ;)

laurence said...

Has AK or anyone received the Rights Shares yet?
Supposed to be today but still nothing in the CDP. :(

AK71 said...

Hi Laurence,

Was it supposed to be yesterday?

I hope everything is OK now.

FellowInvestorForIncome said...

Hi Ak,

Any idea how is excess rights allotted? Just got my excess rights but I’m wondering if I should apply for more in future to get more? Or it will be fixed? Hope you get what you wanted (or close to that) too!

laurence said...

The Rights Shares were deposited only on early 23rd midnight.
Very stable trading today despite the huge mount of Rights Shares becoming tradeable today.
A clear reflection of investors' confidence and trust in this Reit!!!

AK71 said...

Hi FIFI,

Nice nickname and I hope you like the abbreviation. ;)

In my experience, there is no fixed formula for the allocation of excess rights.

It depends on the issuer how they want to do it.

However, most will say rounding up of odd lots will be given priority.

As for IREIT's rights issue, there wasn't much excess rights to go around.

So, I have to be contented with what I got. :)

AK71 said...

Hi Laurence,

At the current price of 61 cents a unit and an estimated DPU of 4.5 cents, we get a DPU yield of about 7.37%.

When we take into consideration that IREIT Global now has a stronger balance sheet with a much lower gearing ratio, the current price is actually a relatively attractive one.

There is ample room for IREIT Global to grow without another round of equity fund raising soon.

I have been buying from Mr. Market in the last few days and will buy more if Mr. Market offers me even lower prices, all else remaining equal. :)

Elaine said...

Hi AK

Thank you for talking to yourself and sometimes us, please do so more often!

I managed to get the excess rights for Ireit too, happy! :-)

May I know if you have considered US Office reits such as Manulife US, Keppel Pacific Oak & Prime Reit? Similar to Ireit, the assets are mainly freehold with long WALE. They are also trading at over 8% yield.

AK71 said...

Hi Elaine,

I don't know if I will blog more often but I will try to check the comments section in a timely fashion. ;)

I think I avoided investing in US office REITs because they had to do something to circumvent the need for foreign investors to pay a witholding tax on dividends and I wasn't very comfortable with it.

I could be wrong but it sounds like a loophole to me and it could be plugged by the US government.

laurence said...

Quote.
Any idea how is excess rights allotted? Just got my excess rights but I’m wondering if I should apply for more in future to get more? Or it will be fixed? Hope you get what you wanted (or close to that) too!
Unquote.

Someone in forum revealed he applied for 31k excess rights but was allotted only a bit over 2k.

Elaine said...

Thank you, AK! Good point! I'll go find out more into that!

AK71 said...

Hi Laurence,

Thanks for sharing. :)

AK71 said...

Hi Elaine,

Peace of mind is priceless.

If in doubt, better to stay out. ;p

FellowInvestorForIncome said...

Hey AK,

FIFI sounds good :) yeah I wasn’t allocated much but I’m happy to be allocated some excess and looking at the trading, prices didn’t drop even with the new shares that are trading.

Please continue to blog!

AK71 said...

Hi FIFI,

Some think that IREIT Global would see its unit price tumble to 55 cents or even 50 cents.

I won't say it won't happen but the probability is low.

The longer it stays at 60 cents or so, the stronger this support will become.

Everything being equal, this is a relatively attractive entry price for anyone interested in investing in IREIT Global for income.

FellowInvestorForIncome said...

Hi Am,

Totally agree with you on the 60 cents support. If it ever tumbles to 50-55 cents, I’ll buy more. As of now, I am already still accumulating at the current price :)

AK71 said...

Hi FIFI,

Ah, I see competition to accumulate at the current level. ;p

I may be wrong but doing some back of the envelope calculations, I see that IREIT Global is actually more undervalued now than it was pre-rights.

Of course, I cannot predict what Mr. Market is going to do but I am ready to buy more if the unit price declines from here. :)

FellowInvestorForIncome said...

Hi AK,

My war chest is barely enough to even compare with your funds(non war chest) :p. So no competition there :). I’m just glad that we share the same idea, accumulating and being paid while waiting. :)

Have a good day!

AK71 said...

Hi FIFI,

Yes, being paid while we wait makes the waiting more affordable. ;)

Good luck to all of us. :D

FellowInvestorForIncome said...

Hey AK,

What’s your view on the current prices of banks and reits? It has been going south for the past 2 days possibly due to the US market dip too. The banks are really attractive now!

Accumulate? Or wait for support?

AK71 said...

Hi FIFI,

If I think something looks attractively priced, I buy some. ;)

I have said before that technical analysis shows where the support and resistance are but it cannot tell us whether these price levels would break or hold or even whether they would be tested with any great amount of certainty.

I spoke about it during the last "Evening with AK and friends" and you might be interested in the blog which also includes recommended books:

Chatting and charting.

Gambatte! :D

Betta man said...

Entered Ireits Global at $0.595 today (30 Oct 20). Hope it is a good price to enter.

csky said...

Hi AK,

What do you think of CDL stock? It's almost as low as March 26 due to the bad news from the family fall out. Too bad it doesn't pay much dividends.

Thank you.

AK71 said...

Hi Betta man,

I hope so too. ;)

I know I will be buying more if the price falls further. :)

AK71 said...

Hi csky,

It is rather unfortunate that family disputes should be made so public but it is unavoidable when they are such a prominent family.

Looking at the numbers, CDL does look undervalued but so are all the local property counters I look at.

I am sure you have a plan. ;)

Eddy said...

Hi AK,
Here’s wishing you Happy New Year and a Blessed 2021! 🍾πŸ₯‚πŸŽ‰πŸŽŠπŸ§§πŸ§§πŸ˜„

AK71 said...

Hi Eddy,

Have a safe and happy 2021. :D

FellowInvestorForIncome said...

Hi AK,

Hope you are doing well. Can I get your advice on the recent rights issue by Ireit. I saw 2 different values for the rights and wonder what’s the difference between the 2 of them.

S$0.6155 for each New Unit under the Placement
S$0.595 for each New Unit under the Preferential Offering

unluckid said...

Hi AK, will you be writing about iReit's newest rights issue?

AK71 said...

Hi FIFI and unluckid,

Please see latest blog. :)

IREIT Global: 214 for 1000 rights issue.


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