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.
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Crunch Numbers
Assume a unitholder owns 10000 units on Monday(Mar 6th, 2017)
Recent dividend history
Right issue scenario
Collected dividend(for the most recent year): S$830.
The same unitholder has to fork out S$2665.10 in order not to be diluted. 3 years dividend spent in one shot.
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ISSUES with REIT
When leverage is high, REITs manger could always resort to right issuance, since sponsor usually is the major unit holder and is aligned with manager, to pass such resolution is easy. But the diligent dividend collector ends up taking out more money from one's pocket.
This is a fundamental flaw in all REITs.
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Attack Plan
How to deal with such scenario?
Source: Rights issue announcement.
Ascott REIT dropped 0.04 or 3+% today on its planned rights issue.
| Rights ratio | 29% |
| Reference of market price date | 6-Mar-17 |
| CR date | 9-Mar-17 |
| XR date | 10-Mar-17 |
| Commencement of Rights unit | 11-Apr-17 |
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Crunch Numbers
| No. of Units | Asset Base(S$b) | Gearing % | |
| Before | 1,660,990,000 | 4.8 | 39.80% |
| Addition of money/units | 481,688,010 | 0.4427 | |
| Aggregate commission/fees | 1.30% | ||
| 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.
==================================
ISSUES with REIT
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?
Quote : "This is a fundamental flaw in all REITs."
ReplyDeleteWhy 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
Uncle8888, i need to articulate my thoughts for a new blog to answer you.
ReplyDelete中国古代有“壮士割下大腿上的肉来下酒”.
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)?