10% Return Potential From This REIT Arbitrage

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By Nat Stewart :

I am going to keep this quick as the idea is timely. Select income REIT ( SIR ) has agreed to be acquired by Government Properties Trust ( GOV ). Shareholders will receive 1.04 shares of Government Properties Trust for Each share of Select Income REIT. They will also receive .502 shares of Industrial Logistics Partners ( ILPT ).

As many know, RMR Group ( RMR ) controls all three of these REITs. As such, I believe the deal will close within the estimated time frame specified - either Late 2018 or early 2019. In my view it is a simplification measure that makes a great deal of sense for all of the REIT's shareholders.

At current prices, investors can buy SIR for $22.67 per share, while shorting GOV at 13.57, and ILPT for $21.50. So for example, if an investor buys 100 shares of SIR, they would short 104 shares of GOV and 50 shares of ILPT, and lock in about $2.24 per Select Income Share. This works out to about a 10% return over an estimated 4 month holding period, or a 33% annualized return (assuming the deal closes within the specified time horizon). It seems like a reasonable bet to me.

Keep in mind, market prices are bouncing around and will continue to do so. Any investor interested in this trade will need to recompute the numbers based upon prices at that time.

See also MAM Software Group, Inc. ( MAMS ) CEO Michael Jamieson on Q4 2018 Results - Earnings Call Transcript on seekingalpha.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Economy
Referenced Symbols: MAMS , RMR , ILPT ,

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