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First REIT: Excess rights not enough.

Wednesday, December 29, 2010

First REIT's rights issue is a resounding success. Valid acceptances at 97.7% which means there are not many excess rights to go around. Of the 7,790,838 rights which were not validly accepted, rounding up of odd lots would have priority. Seeing how there are 88,002,026 excess rights applied for, chances are most of the funds would be refunded to those who applied for excess rights. This includes me.

Rights units would be issued on 30 Dec and will start trading on SGX Main Board on 31 Dec.

Read announcement here.

I believe that there is some fear that First REIT could see a fall in price when the rights units start trading as people cash in their excess rights for a 40% capital gain. Personally, I do not think that very probable. If priority is given to people who need to round up odd lots, how much excess rights would they be able to sell to realise this gain? With such an overwhelming number of excess rights applied for, each unit holder who did apply for excess rights could end up with one or just a few lots of excess rights.

Personally, if I were successful in getting any excess rights at all, I would hold on to them for an estimated yield of 12.8% (6.4c/50c). I would also hold on because I believe the fair value to be closer to 80c (for an 8% yield). I won't be in a hurry to sell.


Having said this, Mr. Market is unpredictable mostly. Price is currently at support provided by the 20d and 50d MAs at 70.5c. In case of a pull back, expect support at 69c, as provided by the rising 100dMA.

First REIT's management also announced that its existing portfolio has been revalued at $355.5 million, an increase of $14.6 million from the end of 2009. This means that NAV for the REIT is now higher by some 4.3% and this would also lower its gearing level a bit. Good news.

Related post:
First REIT: XR and fair value.

26 comments:

Ken said...

Hi AK, how would asset revaluation lower gearing ratio - debt/equity? Or I suppose u talking more on debt ratio?

Just crossing checking.. =)

Derek said...

Hi AK,

I should have bought 100 shares so that my chances of excess rights will be higher. I remembered reading somewhere that some peoples' strategy is to intentionally buy odd lots, apply excess rights and then sell them.

That said, I am competing with you for excess rights. :P I hope we are all successful.

AK71 said...

Hi Ken,

For REITs, gearing would be a function of debt over asset values. So, if property values go up, gearing would fall assuming debt remains the same.

Gearing for companies is calculated as Long Term Debt/Shareholder Equity.

So, gearing for companies is looked at differently from gearing for REITs. For REITs, we look at Debt/Assets. Therein lies the confusion. ;)

AK71 said...

Hi Derek,

I thought of that as well. Well, unfortunately, I do not have any odd lots to round up.

Let's see if we would be succesful in securing some excess rights. 1 lot each perhaps? ;p

Anonymous said...

Hi AK,

For those unsuccesful excess rights application, Do you know when the fund will return back to us through ATM?

AK71 said...

Hi Anonymous,

The refund for unsuccessful excess rights application could take up to 2 weeks to find its way back to us or so it's stated.

Could you include your name or initials in future comments? :)

Ken said...

Yup.. That's becos the debts are used to finance the acquisition of assets for interest income n capital gains, hence the relevance ya?

The stock doing well today too..

AK71 said...

Hi Ken,

First REIT is rock solid. I am not worried about it at all. In fact, I would accumulate on any weakness. :)

Anonymous said...

Hi Ken,

Even if asset valuation increase, the debt to equity ratio will drop since the increase in fair valuation is added to the profit in the P&L Statement hence increasing the REIT NAV.

For simplicity (and regulation sake), gearing is computed at Total Debt / Investment Properties. For REITs without a credit rating (like First REIT), gearing cannot exceed 35%. For those with credit rating, gearing cannot exceed 60% (though most keep it below 45%). Business trust (ie utilities and shipping) have no restriction on their gearing.

Hope this helps :)

Cheers
Nick

AK71 said...

Hi Nick,

Thanks for the contribution. Much obliged. :-)

Derek said...

Hi AK,

I got one excess right. Better than nothing. ;)

AK71 said...

Hi Derek,

1 lot is the minimum I expect every applicant to get, similar to the rights issue by AIMS AMP Capital Industrial REIT.

How many lots were you entitled to?

Derek said...

Hi AK,

Not much, I'm entitled to 5 lots and I applied another 5lots.

AK71 said...

Hi Derek,

I think First REIT favors small investors for this rights issue.

I am entitled to 100 lots of rights but given only 4 lots of excess. :(

Chu Yeow said...

I got 2 lots excess from an application of 40 lots. How did everyone else do?

AK71 said...

Hi Chu Yeow,

I think how many excess rights we get is determined by how many rights we were entitled to in the first place. How many were you entitled to?

Chu Yeow said...

Oh ok. I was entitled to 10 lots.

AK71 said...

Hi Chu Yeow,

I think my suspicion is confirmed that First REIT's rights issue favours smaller investors. Congratulations! :)

Derek was entitled to 5,000 rights and got 1,000 excess rights.

You were entitled to 10,000 rights and got 2,000 excess rights.

SnOOpy168 was entitled to 13,750 rights and he got 2,250 excess rights.

I know someone who was entitled to 43,750 rights getting 3,250 excess rights.

I was entitled to 100,000 rights and got only 4,000 excess rights. :(

Anonymous said...

Hi

I was entitled to 42,500 rights and given 3500 excess rights

CK

AK71 said...

Hi CK,

Thanks for sharing. So far, it seems that my assumption is correct. :)

Anonymous said...

I did not own any First REIT shares prior to XR, only bought 600 lots of the rights.

Applied 10 lots of excess and did not get any.

Therefore from my experience, likely for any rights exercise it is essential to own one or more mother shares before one is entitled any excess allocations.


OldM@n

AK71 said...

Hi OldM@n,

Wow, you own 600 lots of First REIT units now. I guess you must have bought the nil-paid rights at a good price. Congratulations. :)

Evolution said...

was allocated 10 Lots , excess 2 lots .

got my $$$ back for the excess not allocated to me .

AK71 said...

Hi Evolution,

Thanks for sharing the info. Happy New Year! :)

demio said...

hi all,

looks like the maximum so far is 4000 excess rights as I too had gotten this amount with 160 lots of rights application. The rest of the money was returned pretty prompty on the 2nd or 3rd Jan. thanks for all the advise

AK71 said...

Hi demio,

Thanks for sharing this. This is consoling for me. I also got 4 lots only with an application of 100 lots. :(

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