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Rights and wrongs: Charlesming's perspective.

Wednesday, September 15, 2010

Charlesming is the blog master of Time to Huat and also the person who introduced me to the world of Technical Analysis (TA). 

For anyone who might have wondered how a techno dinosaur like me would start a blog, well, although it was primarily because of boredom last Christmas Eve, Charlesming was the person who planted in my head the idea which led me to find out more about blogging during that night of boredom! Reminds me of the movie "Inception"! 

A comment from him recently shows the thinker that he is and I am putting it up as a separate blog post here:

I personally feel that not all rights issue are equal. Rights are issued for various reasons. The exercise price is important to find out if we are getting a good deal. Another important aspect is to figure out what the funds raised are for. I agree REITs need to continue to 'trade'. 

Ideally there is no need to buy and sell assets, save on the cost of doing so and just generate a stable yield forever. The world doesnt stay the same forever. With a large portion of the income distributed via dividends, REITs simply dont have the funds to make accquisitions. Question is, do we agree the accquisition they are interested in, is in good taste and value? If I deem so, I dont see a problem in supporting the rights issue. If I dont let go of 10c, how to gain $1? That is not to say that all rights issues are worth me putting up that 10c.

So I feel it is inaccurate to downplay rights issue as a return of dividends. While partially true,there are some deals where I would like to pay them back some dividends so that they can grow and get more dpu for investors. On the other hand if they make a 'hopeless accuisition' where I cannot see how my 10c can be made to work harder to generate that $1 then I will not support it. I may sell the rights, and/or I may let go of the entire stake I own even.

Taking it one step further, a rights issue gives me a choice. A placement to a private investor(s) gives me zero choice and I cannot help but watch my stake get diluted . This is where I may get a little annoyed.

It is inevitable rights issue (and in some cases placement) is a way of life in REITs and companies looking to expand their business. All are not equal and investors have to figure if the company is doing the right thing, at the right price, and ultimately, at the right time too (market sentiment).

As for the word 'fool' I suppose it can be subjective depending on the context used. An investor, whether buying it at a cheap or overvalued price is a fool or not, could depend on many factors. Could we be fools who over analyze? Could we be fooling others and ourselves, with our own biased opinions? Fool or not, the market is the only one who is right.

One of the lil quotes that I like - "Listen to your heart. It is on the left, but it is always right'.

I prefer to think (as a trader and investor) if I profit after selling something and the price continues to head up, I just take it as its for someone else to profit. One of my own strategies is to take partial profit along the way up. This makes me a winner regardless of the price action thereafter.

Just my 2 cents worth from my very limited knowledge. I hope to learn over the years.

Related post:
REITs: Simply explained?


Anonymous said...

Hi AK71, hv been reading your blog on reits investment? Could u share yr view on Ascott Residence reits? Should investor consider to take up the preferential offer 1 for every 10 share at $1.07/unit?


AK71 said...

Hi CH,

I just took a look at the announcement by the REIT on SGX. It seems that it is a share placement exercise to strengthen the balance sheet of the REIT. There is no income accretive purchase planned.

Existing unit holders would want to take up their allocations in order to avoid dilution and can only hope that the funds would be put to good use to fund yield accretive purchases in future.

You could consider applying for excess units as well but at a small discount of <5% to the current market price, it seems hardly attractive.

Anonymous said...

Hi AK71,

I am afraid that you are incorrect here. The rights issue is meant to finance their S$1.4 billion acquisition of 28 properties in Europe and Asia.$file/Press_Release.pdf?openelement


AK71 said...

Hi Nick,

Really? I stand corrected.

Please pardon my oversight. Always a danger commenting on something I am not familiar with. ;p

Is it a rights issue? I thought it's a preferential 1 for 10 offer or some such. I see it says CA and not CR.

In such an instance, CH would want to check if the offer would lead to greater benefits for existing unit holders. But whatever it is, unlike a rights issue, CH does not have the option to sell away nil-paid rights such as in the case of AA REIT. It's either accept and pay up or be diluted. Please correct me if I am wrong. :)

Anonymous said...

Hi AK71/Nick,

Thanks. It is CA term, private placement of additional units to fund the aquisition of the 28 service apartments in Europe & Asia. It is offering to Singapore Registered Unitholders on a non-renounceable basis of 1 Preferential Offering New Unit for every 10 Existing Units at $1.07/unit. 1st time encountering such case. Not sure what to do. Guess I will have to take up the offer to avoid dilution of my shares. Thanks for taking yr time to share.


AK71 said...

Hi CH,

No problem. I am glad to offer my two cents worth. ;)

Yes, it's either accept and pay up or be diluted without any compensation since unlike a rights issue, there is no nil-paid rights to sell in this case. Good luck. :)

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