The pros and cons of rights issue in Reits

Out of the 18 Reits, 13 chalked up positive IRRs, but some just barely; Seven managed to reward investors with IRRs of more than 10 per cent

By Teh Hooi Ling

Wednesday, Dec 07, 2011
The Business Times

	To pump in more or not
	Returns of Reits with rights subscription and without
	Reits	Year of IPO	Internal Rate of Return (%)
			Subscribe	Don’t Subscribe
	Ascott Residence Trust	2006	13.4	17.2
	Ascendas Reit	2002	16.3	17.2
	First Reit	2006	21.7	14.4
	CapitaMall Trust	2002	16.6	14.2
	ParkwayLife Reit	2007	-	13.5
	Frasers Centrepoint Trust	2006	-	12.7
	Mapletree Logistics Trust	2005	11.9	11.1
	Suntec Reit	2004	-	8.7
	CapitaRetail China Trust	2006	-	6.7
	Fortune Reit (HK$)	2003	6.8	3.9
	CapitaCommercial Trust	2004	7.6	2.7
	K-Reit Asia	2006	-1.2	2.7
	Cambridge Industrial Trust	2006	1.4	1.1
	Starhill Global Reit	2005	3.7	-3.3
	LippoMalls Indo Retail Trust	2007	-9.1	-13.4
	Frasers Commercial Trust	2006	-10.4	-24.8
	AIMS AMP Cap Ind Reit	2007	-19.4	-30.4
	Saizen Reit	2007	-29.6	-36.5
	StarHub	2005	-	29.7
	SingTel	starting 2002	-	12.7
	SPH	starting 2002	-	4.9

(Attibution: Table reconstructed by Investor Lightyear, data source from BT.)

Key article highlights:

• The cashflows of Reits with four years of listing history were tabled and compared against StarHub, SingTel and SPH's cashflows since 2002.
• The Internal Rate of Return (IRR) was computed for the 18 Reits and three counters based on two assumptions - investors either subscribed or sold their rights entitlement.
• 13 out of the 18 Reits had positive IRRs and seven rewarded investors with >10% IRRs. Ascott Residence and Ascendas Reit came up tops. First Reit, CapitaMall Trust, ParkwayLife Reit, Fraser Centrepoint and Mapletree Logistics made up the remaining five respectively. 
• Investors who took up their rights entitlement were better off with improved IRRs. Interesting, in the case of Ascott Residence, Ascendas Reit and K-Reit, unitholders achieved an even higher positive IRR by selling their rights entitlement.
• StarHub beat all the Reits with an IRR of 29.7% and had no cash calls since its IPO in 2005. SingTel did farely well with 12.7% whereas SPH only managed 4.9%.

My two cents worth - it appears subscribing to rights issues of Reits does not totally disadvantaged investors. Rights issues offer existing unitholders an opportunity to purchase additional new units typically at a discounted price. This may be appealing to certain investors, especially those investing for passive income.