Buy CLCT? AA REIT and IREITs' rights issues OTW.

For readers who who are not subscribed to my YouTube channel or who simply prefer reading blogs to watching videos, I produced 2 videos recently and these are the transcripts.
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This was a comment from a reader yesterday.

1. For Capitaland China Trust, do you think sentiments towards China are overly pessimistic?

Hence, could the Trust be trading at a fair price 

now?

2. I am sure you saw the right issue on AIMS APAC Real Estate Investment Trust.

Any comment on that?

AK had this to say about China.

For CapitaLand China Trust, I am just holding on to what I have now.

After seeing how China handled the COVID-19 pandemic and also what they did to their biggest tech companies, I don't really know how to read investments in China now.

Another reader said this about Capitaland China Trust.

Hard to wait for the banks when REITs like Capitaland China Trust kept enticing me with lower and lower prices. How like that?



AK said to the reader.

I have been holding on to my position in Capitaland China Trust and not done any buying or selling.

I am not sure as I am more wary of policy risks in China than anything else right now.

Jamie Dimon, CEO of JP Morgan, said this in a recent interview.

China is a far more complex situation now.

He was mostly referring to policy risks, but he was also concerned about geopolitical risks.

Too much uncertainty caused by the Chinese government.

We can also see that Chinese economic recovery has been weak and, to be honest, I agree that much of it has been self-inflicted.

It is not hard to understand that I would rather put more money into investments I have less to worry about.

AK is becoming timid with age.



I had this to say about AIMS APAC real estate investment trust.

The proposed rights issue is relatively small, but it is necessary so that the REIT does not take on more debt to grow organically.

The sponsor has also thrown its weight behind the exercise.

The sponsor, which holds about 75 million units, or about 10% of the total units in the real estate investment trust, has provided an irrevocable undertaking to the manager and the joint bookrunners and underwriters, which include DBS Bank.

The sponsor will accept, subscribe and pay in full for its total provisional allotment of the new units under the preferential offering.

They will also make applications for the number of excess new units under the preferential offering which are not taken up by other unitholders.

Hence, demonstrating their confidence in the real estate investment trust.



The exercise will raise around $100 million through the private placement and preferential offering.

Private placement is to place about 56 million to 58 million units at an issue price of about $1.21 to $1.25 per unit to raise proceeds of $70 million.

The non-renounceable preferential offering or rights issue will raise another $30 million.

This is through the issuance of about 25 million new units to existing eligible unitholders at about $1.19 to $1.23 per new unit.

Existing unitholders will be eligible to an advanced distribution of between 1.7 cents to 1.9 cents per unit.

This would be for the months of April and May.

The record date to be entitled to the advanced distribution and the eligibility to participate in the preferential offering is at 5pm on June 9.



The funds raised will help unlock greater value organically through active enhancement and re-development strategy.

It will also help to secure growth opportunities through targeted acquisitions.

I rather like rights issues which raise money in order to generate more income for the investors.

This is a relatively small rights issue and, therefore, not too demanding.

If AK can talk to himself, so can you!

(Continue scrolling down to read about IREIT Global and its rights issue.)

Reference:
REITs and rights issues.



I have said before that I rather like rights issues if the money raised is used to generate more income for investors.

In the latest fund raising exercise by IREIT Global, this seems to be the case.

They are proposing to acquire 17 retail parks in France.

A strong reason to invest in these assets is that this retail format will continue to outperform in the context of global inflation partly caused by the COVID-19 pandemic.

"The popularity of hard discounters, discounters and outlet stores in France has risen exponentially in recent years.

"Retail Parks, an Out-of-Town asset class, have been resilient through the COVID-19 pandemic due to their accessibility, open-air format, wide range of available spaces, parking facilities, manageable operational cost, value-for-money brands and for some retailers, omni-channel experiences."

These 17 retail parks are leased to B and M Group, a European discount retailer listed on the London Stock Exchange with a market cap of about 4.7 billion Sterling Pounds.

They have been occupying these assets since 2005 on average.

There is a Weighted Average Lease Expiry of 6.8 years but there is an option for lease break 4.6 years from now.

A combination of competitive rents due to out-of-town locations and a resilient retail model which is discount retailing suggests to me that this is a good investment.

Of course, all investments are good investments at the right price.

The asking price is approximately $112 million.

This gives approximately 1.7% discount to the average of the two independent valuations of approximately $114.1 million.

The price is very close to valuation.

Although this might suggest that we are not getting a fantastic deal, it also suggests that this kind of properties is probably in high demand.

The seller isn't desperate to sell.



However, similar to the purchase of Woolworth's HQ in Australia by AIMS APAC real estate investment trust, I like that these 17 properties in France have excess plot ratios which could be developed for more rental income in future.

I would take this potential into consideration since we should always have a long term perspective when investing in good income producing properties.

So, apart from rental escalation being pegged to inflation, this could be another way to extract more income from the assets.

When we take into consideration that new developments of such assets are being restricted in future due to new French regulations, these assets will become even more valuable in future.



This reminds me of Saizen REIT when its properties were valued at under replacement cost.

No one in his right mind would construct a new building when buying an old one would be much cheaper, and would give similar or higher rental yields.

So, the assets Saizen REIT was holding were undervalued.

In the case of out-of-town assets in France, new ones are apparently not allowed by law.

With the future in mind, we could make the case that these assets could be undervalued.

Of course, having these properties in the portfolio would reduce concentration risk which has been a major pain point for many investors forever.

I don't really care for the other advantages put forth by the management.

The next thing I want to know is how the acquisition is going to be funded and whether it is going to be yield accretive.

Apparently, it is going to be yield accretive.

Pro forma adjusted FY2022 accretion of 2.0% was computed based on audited FY2022.

This is with the assumption that Darmstadt Campus is 100% vacant for FY2022 from 1 January 2022 with nil revenue but with operating expenses.

OK, how much do investors have to pay?

Cost of properties = $112 million.

Expenses related to purchase = $20 million.

Now, I know how people paying ABSD in Singapore feel.

The deal will be funded by the following.

1. A non-renounceable underwritten preferential offering of new Units to existing Unitholders on a pro rata basis or a rights issue.

2. External bank borrowings.

3. Borrowings from Tikehau Capital.



Both Tikehau Capital and City Developments Limited, the joint sponsors, and the manager, will subscribe in full their allotment in the rights issue.

They will also subscribe to excess units which other investors do not take up, such that their aggregate subscriptions would amount to a maximum of $40 million.

IREIT Global has a market capitalization of around $550 million.

As the sponsors jointly hold about 50% of the total units issued, without further information, I can only hazard a guess that we would see around 10% increase in the number of units issued.

We could assume that approximately 168 million new Preferential Offering Units might be issued at an illustrative issue price of 45 cents per Preferential Offering Unit.

This could raise gross proceeds of approximately $75 million.

So, if we like this proposed investment in French retail parks, we have to be ready to increase our investment in the real estate investment trust by about 10% through the rights issue.

If AK can talk to himself, so can you.

Reference:
IREIT Global presentation.