IREIT's rights issue: Why did AK subscribe?

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?