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Now, this blog post's title might make it look as if I have changed my mind about the REIT. No, I have not.
Some people are wondering if they should accept and pay for the rights or if they should just sell the rights away. To me, it is a no brainer to accept and pay 15.5c for the rights shares. With a DPU of 2.08c per annum estimated, post rights, the yield is a most irresistable 13.42%! In fact, we should apply for excess rights and hope to get more units at 15.5c.
Well, that's all very nice but what if we have no money to pay for the rights or what if we simply do not want to fork out more money? Would our stakes be heavily diluted? Apart from the NTA per unit declining from 31c to 26c, the dilutive effect is not as bad as some opponents to REITs make it out to be.
REITs are income instruments. Therefore, we must remember that we are investing in REITs for regular income. The DPU per unit would decline from 2.15c to 2.08c, post rights. This is a DPU loss of 0.07c a year. It is not dramatic. We would also be able to sell away the nil-paid rights when trading starts. At an exercise price of 15.5c and with expectations that price would see a modest decline to 21c per unit, post rights, we can expect the nil-paid rights to trade at around 5.5c each. Selling these away would bag 30 months' worth of DPU (post rights) straightaway! Now, is that such a bad thing?
On top of that, our current investment would still make an annual DPU of 2.08c! This is provided that everything remains constant, of course.
Accept and pay for the rights or sell away as nil-paid rights, either way, unit holders end up winners. There will always be detractors but as long as we are clear headed and know what to do in any given scenario, we will be fine. Good luck to fellow unit holders.
Related post:
AIMS AMP Capital Industrial REIT: Rights issue.
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