I received a mail in my letterbox over the weekend from Mapletree North Asia Commercial Trust – a long-term investment of mine (in case you’re wondering, I have gotten the mail because I invested in the REIT via a CDP-linked brokerage account; if you invested in the REIT via a custodian account, you should receive the same message in your brokerage account and if you don’t, you can contact your brokerage firm to enquire.)

In the letter, I was asked to state my preference to either receive the distributions (declared when the REIT announced its fourth quarter and full year 2020 results on 29 April 2020) in a form of cash (of S$0.00496 per unit), in a form of new units of the REIT (which will be computed based on the unit price of S$0.8752 per new unit), or a combination of both.

By default, all unitholders will receive their distributions in a form of a cash payout (unless you state your preference to either receive units of the REIT, or a combination of cash and units of the REIT by 04 June 2020.)

One of the questions on my mind (and very likely the minds of many unitholders) are – how do I calculate the number of new units of the REIT I will receive (if I opt for this option), and which option is more “worth it”?

In this post, I will be sharing with you the formula to calculate the number of new units of the REIT you will receive, along with pros and cons of choosing this option.

Formula to Calculate the Number of New Units of Mapletree North Asia Commercial Trust

The number of new units you will receive can be computed via the following formula:

(Number of Units x Tax Exempt Income of S$0.00346/Unit Declared) / Unit Issue Price of S$0.8752/New Unit

+

(Number of Units x Capital of S$0.00150/Unit Declared) / Unit Issue Price of S$0.8752/New Unit

Allow me to now explain the above formula with an example – if I have 1,000 units of the REIT, and I opt to receive all my distribution in a form of new units of the REIT, here’s the number of new units I will receive:

[(1000 x 0.00346) / 0.8752] + [(1,000 x 0.00150) / 0.8752]

= 3 + 1 (numbers have to be rounded down to the nearest whole number)

= 4 new units of the REIT at S$0.8752/unit

As such, if you opt to receive your distribution in a form of new units of the REIT, your shareholding after the payout date will go up by 4 units to 1,004 units.

In dollar-terms, if I were to take these 4 new units received multiplied by the price of S$0.8752 per new unit, it will be S$3.12.

However, if you opt to receive your distributions in cash, you will receive a total of S$4.96 (based on 1,000 units that you have, and it is calculated by multiplying 1,000 units by distribution payout of S$0.00496 per unit.)

Pros and Cons of Receiving New Units of the REIT (Compared to Receiving Cash Payout)

Pros:

  • You are getting new units of the REIT without needing to pay for any brokerage fees or other related fess (as the new units will be credited directly into your account on payout date.)
  • While based on the calculations above, it seems that you may be getting “lesser” in terms of dollar-value, but in the long-term, should the unit price goes up, these new units you’re getting will be worth more as well (should you sell them on the open market.)

Cons:

  • As trades are done in blocks of 100 units (for both buy and sell on your trading platform), you will have to manually sell these “odd numbered” units if you decide to sell off all your units of the REIT in the future – which after accounting for brokerage commissions involved (most brokerage firms in Singapore charge a minimum commission for every transaction) and other related costs, it may not be worth it.

In Conclusion

After consideration, as the unit price of the REIT on the open market is so much lower (the REIT is currently trading at just S$0.815 at the time of writing), it makes no sense for me (in my personal opinion) to opt to receive my distribution in a form of new units (which the number of units I will receive is calculated based on a much higher unit price at S$0.875.)

But having said that, the decision is yours to make – the reason why I am sharing this today is so that fellow unitholders will have a better idea of the options available to them, how they can compute the number of new units they will receive based on the number of units they have (if they opt to receive them instead of cash), along with the pros and cons of choosing this option.

Disclaimer: At the time of writing, I am a unitholder of Mapletree North Asia Commercial Trust.

 

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