Tuesday, March 7, 2017

Ascott Reit(A68U): Issues with Rights Issue

Draft: 3/7/2017, Price: 1.13, Market cap: 1.9b.

Source: Rights issue announcement.

Ascott REIT dropped 0.04 or 3+% today on its planned rights issue.

Rights ratio 29%
Reference of market price date 6-Mar-17
CR date 9-Mar-17
XR date 10-Mar-17
Commencement of Rights unit 11-Apr-17

Crunch Numbers
No. of Units Asset Base(S$b) Gearing %
Before      1,660,990,000 4.8 39.80%
Addition of money/units          481,688,010 0.4427
Aggregate commission/fees
After      2,142,678,010 5.3 37.00%

Assume a unitholder owns 10000 units on Monday(Mar 6th, 2017)
Recent dividend history
31-Jan-17 0.044
26-Jul-16 0.023
18-Mar-16 0.016
1-Feb-16 0.041

Right issue scenario
Unit Price Total
Before 10000  $                         1.17  $   11,700.00
Rights Price Total
2900  $                       0.919  $     2,665.10
After 12900  $                         1.11  $   14,365.10

Collected dividend(for the most recent year): S$830.
The same unitholder has to fork out S$2665.10 in order not to be diluted. 3 years dividend spent in one shot.

When leverage is high, REITs manger could always resort to right issuance, since sponsor usually is the major unit holder and is aligned with manager, to pass such resolution is easy. But the diligent dividend collector ends up taking out more money from one's pocket.

This is a fundamental flaw in all REITs.

 Attack Plan
How to deal with such scenario?


  1. Quote : "This is a fundamental flaw in all REITs."

    Why flaw?

    That is the nature of REIT biz model.

    Investing in reits for income is no issue if one can keep up with their right issues

  2. Uncle8888, i need to articulate my thoughts for a new blog to answer you.

    REITs retail investor invests in some REITs whose mgr keeps up passing out generous dividends, and in turn keeps requesting new fund from unit holders are like "古代的壮士",他们(retail investor)吃的是自己大腿上的肉。I'm sure you know what i mean in this metaphor.

    The issue is when one REIT starting this practice, what will(prevent) other REITs mgr do(follow)?