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Regular readers know that I will always take the income distributions from REITs in cash when they offer a Distribution Reinvestment Plan (DRP) as an alternative.
There are two reasons why I do this and they are because:
1. I invest in REITs primarily for income and accepting new units in lieu of cash distributions means having less passive income.
2. There is a possibility that I could get to buy more units of the REITs cheaper later on.
These seem to be reasonable enough.
However, with the DRP offered by AIMS AMP Capital Industrial REIT with regards to 4Q FY2013's distribution, I have decided to accept some DRP units and the balance in cash.
See? Who said that people who invest in REITs are predictable? Could anyone have predicted this decision of mine? OK, why have I decided to do this?
Let us start with what we all know. The REIT went XD on 26 April 2013 with a DPU of 3.14c. Today, the REIT closed at $1.84 per unit. The DRP units are at the issue price of S$1.6727.
So, there is a 10% difference between the REIT's closing price today and the DRP issue price.
If we were to take advantage of this, we would get 10% more money than choosing to receive the distribution in cash only, wouldn't we?
For example, if someone who was going to receive S$1,672.70 in cash distribution should opt for new units instead, he could sell these new units for S$1,840.00 to Mr. Market and make some nice pocket money!
Of course, we wouldn't know if the unit price would still be at S$1.84 later on. It could possibly be lower, after all.
The solution to this is quite simple. The person could sell an equivalent number of units from his existing holdings now to lock in the price of S$1.84. These units sold would soon be replaced by the DRP units anyway.
I like to have my cake and be able to eat it too. Who doesn't?
However, what I have described so far might not work for everyone. Why?
Although to receive about 10% more money is attractive, the operation would make sense only to those unit holders whose cash distribution from the REIT amounts to S$1,672.70 or more.
Doing some simple calculations, with DPU at 3.14c, it would only make sense to investors who hold 54 lots or more of units in the REIT to do this. Any lesser, it won't be viable.
It would also make sense for unit holders who hold more substantial stakes in the REIT to calculate exactly how many of the units they currently hold should be used in accepting DRP units to avoid odd lots which could be quite a pain.
For anyone who is thinking of accepting DRP units, remember that the closing date is 23 May 2013.
Related posts:
1. AIMS AMP Capital Industrial REIT: Bumper distribution.
2. Made and still making money from S-REITs.
3. AIMS AMP Capital Industrial REIT: Making money.
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