Current Price: $24.60
Offer Price: $25.00 – $28.00
Upside: $340 (for odd-lots)
Expiration Date: 8th of November
A short note on the fresh tender offer with odd lot provision and trading at the lower limit. No downside risk for odd-lot positions and free optionality on share price increases till the expiration. However, at the same time there are limited arguments in favor of the mid/upper limit tender offer pricing.
InvenTrust Properties is a shopping center/grocery REIT in the Sunbelt region. The company has recently uplisted to NYSE and launched a dutch tender offer for 5%-5.6% of outstanding shares to support the price and liquidity. The tender range is set at $25 – $28 per share. Odd-lot shareholders will be accepted on a priority basis. Expiration is set for the 8th of November. The positives are that directors won’t tender (although they own less than 1%) and there are no other major shareholders either.
After the up-listing the company seems to be fully valued even at the lower limit of the price range. IVT currently trades at 19x run-rate H1 FFO, 8% cap rate, and 3.3% dividend yield (will be slightly increased in Q4). In comparison, other shopping center/grocery REITs trade (H1 run-rate): BRX 13x FFO, 11% cap rate, KRG – 16x+ FFO, 10% cap rate, ROIC (more of a West peer) 19x FFO, 8.5% cap rate, RPAI – 14x FFO, 11% cap rate. Of course, most of these peers have significantly higher leverage (6x-7x net debt/EBITDA) vs IVT’s 3.9x and a bit lower leased properties rate on average. However, REG, the leading player in the industry ($12bn market cap) showing the best earnings recovery and expected to recover to pre-pandemic levels this year, trades at 18.6x run-rate FFO, 7% cap rate, and 3.3% dividend yield. Thus, despite the expected recovering shopping center REITs, it is difficult to see the tender getting priced anywhere close to the upper limit.
IVT owns 65 open-air shopping centers with 10.8m GLA. 85% of NOI comes from grocery-anchored shopping centers. Despite its size ($1.8bn market cap), prior to uplisting the company traded on pink sheets as IARE with extremely low liquidity and was off-the-radar for most investors. A bit more liquidity appeared after the uplisting announcement. The stock opened at $23.6/share on NYSE on the 12th of October with plenty of liquidity and has traded at that price for a few days. Although there are no major shareholders, I expect that many early arbitrageurs who bought at those prices will tender into the current offer – about 2.5m traded in the first two days after the uplisting vs 4m max limit to be acquired in the tender.
IVT properties:
NOI comparison vs peers:
Where do you guys usually tender? middle of the range? low end? high end? thnx.
Dutch tender are priced at the same level for everyone. The company will choose this final tender price so that the tender allocation gets filled by accepting everyone (possibly prorated) who tendered at or below the selected price. Odd-lot holder who want to have a guarantee that the odd lot position will be accepted need to tender at the lower limit. Otherwise there is a risk that tender gets priced below the selected limit and position is not accepted in the tender and therefore returned in full post expiration.
How does the tender actually work if you buy the stock today? Do you have to work with your broker/custodian in some way to notify them you want to participate?
Yes, you need to work with your broker to submit your shares for tender. The problem is most brokers will charge you to submit the corporate action, this eating into your profit for these odd – Lot tender offers
IB does not charge for corporate actions and has a simple automated way to select your choice of tender, i.e. specific price
Any other brokers besides IB not charge for processing corporate actions?
I believe some academic studies have “found” that 70 percent of dutch tenders get priced at the median of the bid-ask, although I know of no one who has done such a study and limited it to tenders with an odd lot priority. (Any Ph.D. candidates out there looking for a topic?)
Any links to these academic studies? Thanks.
I don’t off hand, but some time Googling can probably turn up cites if not links.
so you buy 100 shares here and make $340 ??
Less than 100, so up to 99
Odd lot holders are those who have less than 100 shares and these holders will not be prorated in the tender – all of their tendered shares will be accepted at the final tender price. $340 upside for odd lot holders will be realized only if the tender gets priced at the upper limit. From where it is trading now, it looks that lower limit pricing is more likely. But there is still a couple of weeks left till expiration.
Last year company announced Q3 results on the 6th of November, so there is a chance that positive results if announced before the expiration will lift up the price.
Love the free money ideas. I’m looking through the offering doc (only by searched “odd”) and don’t see where you might have gotten “Upside: $340 (for odd-lots)” from – do you mind pointing it out?
they are saying that because shareholders with fewer than 100 shares get prioritized, your downside is very likely to be $25 less any brokerage fees… so that amount less current price times 99 shares is roughly the ‘locked in’ profit
it’s not $340 – that’s potential upside to top end of the range – really as I interpret the pitch it’s saying ‘limited downside with potential upside if the tender prices better than the low end of the range and with upside from stock price in meantime, but likely to just make small small profit’
as others have said to ensure acceptance in tender it make sense to tender <100 shares at the very low end
https://www.sec.gov/Archives/edgar/data/1307748/000119312521296266/d116250dex99a1d.htm
I’ve been tracking tenders for 7 years, and over the last 7 years the average one has priced at around 103% of the midpoint.
However, there is typically a strong relationship between where the stock trades right before the expiration and where it prices. I view it as very unlikely to price at the top of the range. This is a relatively small tender at ~ 5.5% of shares, and I think it will be well subscribed.
I’m in it as it’s asymmetric.
Also, vanguard does not charge CA fees as well as IB.
Hi Brian – thanks for the insights. Could you clarify what you mean by “priced at 103% of the midpoint”? Would you mean to say that tenders like IVT would have their stock in the market historically trade at 27.29? (assuming 26.50+(.03 x 3)? Am I interpreting that correctly?
IVT is now trading at 24.42 so the spread has widened slightly.
Spread from current price of $23.7 to the lower end of the range ($25) is 5.5%, translating into minimum profit of $128 for odd-lot holders.
when is the record date for that tender?
Last day to purchase and be eligible for the tender is 8 November.
This is a relatively liquid stock, so I think price is not driven by the limited demand from odd-lot holders, but by the expected outcome of non-odd-lot tender.
The outcome can be self-fulfilling, with falling price leading to even more shareholders to tender at the lower limit, causing even more (non-odd-lot) arb traders to rush to the exit. So price volatility is normal.
CORRECTION: The last day to purchase and be eligible for the tender is 4 November.
8 November is the deadline for submitting shares to the offer at Interactive Brokers.
thanks, and am I right in thinking that odd-lots are OK being tendered at $28 since they have priority?
Tony, as I understand, if you tender at $28, you probably won’t get accepted if the final price is set lower than that. The odd lot provision only guarantees that you won’t get prorated if the price that you’re tendering at doesn’t exceed the final price – not that you will be accepted at any price. So it’s probably best to tender at $25 – this secures that you will get accepted and if the final price ends up higher, you’ll also get paid more. Otherwise, it’s a bet on whether the final price will end up at/above the price you’re tendering at. I think this one is very unlikely to get priced higher than $25.
Any idea why the spread has widened so much? The overall REIT market isn’t down and the only news I could find is regarding their purchase of a shopping center in Austin Texas.
Preliminary results of IVT tender offer are out. As expected, it was significantly oversubscribed and priced at the lower limit of $25/share. 42% of tendered shares will be accepted. The idea is now closed with a very low risk $40 profit in 1 month.
https://www.bamsec.com/filing/119312521323944/2?cik=1307748
Tax Prob. I’m Canadian. I got stung for %15 Non-Resident withholding tax on the entire amount on this one at NBDB (National Bank). I made the same trade at IBKR and had no withholding taxes. Anyone been through this? If I get a 1042-S for the withholding can I file a 1040-NR and recover that money? One of these trades was in a TFSA so if I can’t point to something saying it was wrong those funds will go to money heaven without credit. Thanks for any thoughts guys.
If you believe you were not supposed to be charged withholding tax, you may want contact your broker and inform them about that. IB has also charged me incorrect withholding taxes a number of times and these were reversed after contacting them. I am not a Canadian resident though, so can not comment on this specific case.
Do you remember which stocks IB withheld tax for?
One I seem to recall was PARF on the initial liquidating payment.
If you did it for only 99 shares you could ask your broker for a form 302 (something like this) https://www.bmoinvestorline.com/selfDirected/pdfs/S302_Tender_Certification_EN.pdf . Then you can check A: because your odd lot was completely taken up your position was completely terminated and should not be subject to withholding taxes. Not all brokers support this though. And it only works in case you either qualify for A or B.
Also, IVT is a REIT. I’m not Canadian nor a US citizen but REIT taxation can be a headache in my experience. Are you sure that a Canadian buying a US REIS is exempt from paying withholding taxes? That’s something you should figure out yourself, I’m afraid.
Thanks for all the helpful replies folks, great community here. Writser + 1 for the form 302. I’ll post up at the end how it all comes out.
Got the last of the withholding funds returned today. $371.25 x 2 accounts. Form 302 was the requirement but they (NBDB) would only accept their version of it. I was probably 4 hours total time on this, mostly on hold but also about 10 emails and sending/resending form 302. I also didn’t submit the BSIG odd lot because I didn’t want a repeat of this fiasco and that position has cost me. Same trade in IBKR no issues, they’re still the best I’ve found for corporate actions.
Thanks all.