I can understand why existing shareholders of LMIR Trust are frustrated and this has sent the share price down by 6% today.
Sometime in the mid of Sep earlier this year, the management had announced their intention to acquire Lippo Kemang Mall into their portfolio at a cost of $385 million. You can refer to the circular if you wish to read on further on the acquisition.
Back then, the Pro Forma for the acquisition looks like this (see below table). The management has intended to fund this acquisition via a mix of internal cash, debt and equity. For the equity portion, the pro forma below used is based on raising $45 million at $0.405/share with an additional 111,111,111 units.
|Pro Forma details from Circular|
A couple of months passed and shares of LMIR has dropped since then. At a price of $0.37 before yesterday announcement was made, it simply does not make sense to issue the placement at $0.405 anymore since market price is lower. So they came out with a revised by deciding to raise $40 million at issuance $0.34/share with an additional 111,647,000. As a result of this move, this has sent the share price dropping by 6% today. Current price is at $0.34.
I’ve done a quick revised Pro-Forma over my lunch break and changed the additional units as a result of the revised placement. The impact is minimal. DPU has gone down by 1 cents over 6 month period while annualized yield has gone down by 10 basis point. Everything else is assumed to be constant.
In fact, at a current price of $0.34, this means that the annualized yield is at an enticing 8.5% (2.9/34). Pretty decent in my opinion.
Existing shareholders must be pissed at the lag of such fund raising timing which cause them to be unfavorable as compared to the original pro-forma. New shareholders who can get in at $0.34/share in the open market are looking at an enticing yield of 8.5% annualized, but do take note that there is a $5m difference ($45m – $40m) from the original pro-forma which the management had to fund now via cash or debt. In other words, if you are a new shareholder, you are getting a better yield but slightly higher gearing on the company.