Monday, May 14, 2012

AIMS DRP: The optimal number of units to apply?

Earlier last month, I posted about the AIMS 4QFY2012 results. For this quarter, it is interesting to note that they started a distribution reinvestment plan (DRP) where we can opt for units rather than cash distributions.

Previous post: AIMS Industrial REIT: 4QFY2012 results

Today, I  received the DRP letter for AIMS. 

Some details to note:
DPU: $0.027
issue price: $1.1622
Last done price: $1.17

The amount of DRP units allocated can be calculated using the formula below:

N = (S * D) / V

N is the number of DRP units to be allotted and issued.
S is the number of participating units held by the unit holder
D is the qualifying distribution per unit. In this case, it is 0.027
V is the issue price of the DRP unit. In this case it is 1.1622

The most important part is N will be rounded down. Any fractional entitlements will be disregarded.

 One question I had in mind was how I can minimize the "loss" through those fractional units if I wanted to participate in the DRP?

Since D and V are fixed, we can re-write the formula as:
N = (S * 0.027) /1.1622
I am fine with keeping odd lots of my holdings. However, I do not like the idea of keeping a weird number of units. I wanted my units to be in multiples of 50s at least. 
To achieve that, we need to do some calculations. To get 50 units, you will need a minimum of 2153 units to participate in the DRP. Higher units are computed as follows:
number of units
units to take part in DRP

I then computed the number of units before the fractional entitlements are removed:
Units to take part in DRP
units alloted
 Even though if you had chosen a random number of units to participate, the actual differences will be very little (less than a dollar), it is still our entitlement!

How this can help you:
If you are intending to apply for the DRP, calculate before you apply. For example, if you own 10000 units and want to participate in the DRP fully, you are entitled to 232.31 units. This will be rounded down to 232 units. However, did you realized if you participate in the DRP for 9987 units only, you would still have gotten the same 232 units. The remaining 13 units which you can opt for cash will net you another $0.35. 
Little it is, but better than nothing. Isn't?

Other thoughts:
The calculations above were done for fun. I will still wait for another week before deciding if I want to take part in this DRP.  If prices remain above 1.16, I am likely to opt for units for part of my holdings. If the price starts to fall, I will opt for cash and find a good opportunity to buy at a even lower price than the 1.1622 that is offered.

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