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First REIT: Waiting at 67c.

Friday, December 10, 2010

I was waiting at 67c, the long term support provided by the 200dMA, with my overnight buy queue but First REIT was just teasing me. It went to 67.5c and there it stayed. Market participants seemed quite happy to buy up at 67.5c which would provide a yield of 9.48%.


I was in LP's cbox and some asked me to consider buying the nil-paid rights instead since they were trading at 16.5c. Including the 50c to exercise the rights, the price is only 66.5c, 1c cheaper than the mother share's 67.5c. In fact, LP (the blog master of Bully the Bear) and JW (the blog master of Wealth Buch) both bought the nil-paid rights at 16.5c today. I will have to consider this suggestion. From the queues today, it would seem that there is relatively strong support for the rights at 16c. Getting the rights at 16c would mean a unit price of only 66c and a yield of 9.7%!

Now, why are the nil-paid rights being sold off so cheaply? I had an idea that there are probably some who do not wish to fork out more money to exercise the rights. However, JW's broker sent him an email and it mentioned: "First REIT - SGX is selling the rights for those who are not entitled to the Rights Units (Investors with Foreign addresses)". So, there are also some who are not able to accept and pay for the rights. It would seem that First REIT has many such investors. Would they be interested in buying some First REIT units to avoid dilution? They just might.

This REIT is definitely a strong buy at these levels.

Related post:
First REIT.

24 comments:

Newbie said...

Hi,

I managed to buy some rights at 0.165 too. Btw, do you know how to exercise the purchased rights? Will there be an option at the OCBC atm where I can exercise the purchased rights?

Many thanks in advance.

From,
Newbie

AK71 said...

Hi Newbie,

It would be the same procedure as accepting and paying for any nil-paid rights. Go to the ATM, scroll through the pages and you will find the option available. :)

Anonymous said...

Hi AK71
I i buy the nil paid rights at 0.165 at open market. do you know how to exercise the purchased rights and how to convert it to a mother share and able to sell off in future ?

Thanks
Benson Tan

AK71 said...

Hi Benson,

Refer to my reply to Newbie above. ;)

In greater detail, if you bought 20 lots of nil-paid rights at 16.5c, for example, you would have to go to an ATM and search for the "Rights Application" button and hit "First REIT". Enter your acceptance of 20 lots (i.e. 20,000 rights) and pay $10,000.00.

Your rights units would be issued on 30 Dec. :)

WK said...

wat if i keyed in more than wat i m allocated?

AK71 said...

Hi WK,

There would be two entries: the first for what you already have (entitled plus nil-paid rights which you might have bot in the open market) and the second for excess rights you want to apply for.

la papillion said...

Hi,

I think for the sake of all the confused souls out there, I'll help AK by giving an example :)

Say that I've 9 lots of first reits mother share. Upon XR, I'll have 11.25 lots of entitled rights. Since they are not paid, these are also called nil-paid rights. It'll be on trading until 16th Dec, so if I don't want to subscribe to them, I should sell them out in the open market, paying the brokerage too.

In addition, I buy another 10 lots of first reit rights in the open market, during the nil paid rights trading period. So, in total, I'll have 10 + 11.25 = 21.25 entitled rights that I have to subscribe.

Before 22nd Dec, I'll go to the atm to subscribe for both my entitled rights and to apply for excess. In the first screen, I'll key in to pay for 21250 shares of entitled rights (add whatever entitled rights you have based on your holdings upon XR plus whatever you've bought from the open market during nil paid rights trading period). In the next screen, I'll key in to pay another 9000 shares of excess rights.

In total, I have to make sure I have enough money to pay for 21250 + 9000 = 30,250 shares of rights @
$0.50 each, which is a grand sum of $15,125. This amount is deducted straight from your bank account. If I didn't get any excess rights at all, I'll be refunded $4500 (9000 x 0.50 =4.5k) a few days after the rights exercise is completed.

Once the rights start trading as ordinary shares (I think it's 30th Dec, not too sure about this date), you can buy/sell as normal. The nil paid rights trading period means that there be two counters called first reit R (something like that) appearing. After the nil paid rights trading period ends, the two counters for the exclusive trading of the rights will be gone too.

WK said...

will there be a slip from the ATM as proof of your purchase?

Gerard said...

Hi AK,

In your reply to Benson Tan above, assuming buying nil paid rights 20 lots at 16.5 c, we pay $10,000 at the ATM.

1) How about the remaining amt of $3,300 (20 lots x 16.5c)?
2) I do not have mother shares of First Reit now, but I think I can buy the nil paid rights online just like the mother shares correct?
3) If I buy the nil paid rights before 16 Dec, by when do I have to pay for them?
4) What would be the conversion to 1 lot of mother share? Want to avoid any add lot.

Appreciate your reply

AK71 said...

Hi LP,

Thank you very much for taking the time and trouble to make such a detailed comment on the process. :)

AK71 said...

Hi WK,

Yes, the ATM would produce a receipt to show that you have accepted/pay for the rights plus your application for excess rights, if any.

AK71 said...

Hi Gerard,

If you bought 20,000 nil paid rights from the stock market at 16.5c/unit, you will have to pay your broker for these. Then, you would still have to visit an ATM to make payment (50c/unit) before the rights exercise ends. So, your total cost is 66.5c /unit.

Yes, you can buy the nil-paid rights trading in the stock market. Trading of nil-paid rights closes on 16 Dec.

The last day of acceptance and payment of rights is 22 Dec. If I am not mistaken, you have to do it by 5pm that day.

1,000 nil paid rights, upon acceptance and payment will become 1,000 rights units which would be the same as any First REIT units currently trading in the stock market.

I hope I have answered your questions. :)

Gerard said...

Yes, thanks a lot. =)

Anonymous said...

""First REIT - SGX is selling the rights for those who are not entitled to the Rights Units (Investors with Foreign addresses)"

If my broker had this info for me as LP did....

feeling a little short....

SnOOpy168

AK71 said...

Hi Gerard,

You are most welcomed. :)

AK71 said...

Hi SnOOpy168,

That titbit was from JW, not LP. ;)

Anyway, that news was released after the sell down and not before. So, no matter, I feel. As long as we still got a good deal, I'm OK. :)

Gerard said...

Hi AK,

Want to ask how much would paying for the rights (50c) at ATM be, given we also need to pay brokerage fees for the nil paid rights (16c today)?
Do you know becos otherwise it may be better off buying mother shares for a difference of 0.5c

AK71 said...

Hi Gerard,

To accept and pay for the nil-paid rights at the ATM costs us $1.

If we were buying a large quantity, it would actually be cheaper to buy the nil-paid rights and then exercise them at the ATM at 50c a piece.

So, for example, if one had bought 60 lots of nil-paid rights at 16c, one would have to pay more than S$28 in brokerage and other fees. Then, one would have to pay $30k to accept and pay for the rights at the ATM to convert them into rights units. One would have saved almost $100 in brokerage and other fees, which would have been incurred if one had purchased 60 lots of mother shares at 66c/share.

Of course, for much smaller quantities, it might not be worth the effort if there is no difference between the mother share and the nil-paid rights (including the 50c/unit to be paid at the ATM later).

Gerard said...

Thanks a lot! However in the 2 last para last sentence, it shd be 66.5c instead of 66c? Otherwise how to have a $100 estimated savings.. =)

AK71 said...

Hi Gerard,

No mistake. I was referring to the savings from brokerage and other fees. Assuming that brokerage is $28 for every $10k worth of transaction, a $30k transaction would be $84 of brokerage fees. Plus other fees, it would be almost $100. So, instead of paying almost $100, you would only have to pay $1 at the ATM to exercise the rights which you bought at 16c to convert them into rights shares. :)

If the mother share was 66.5c and you bought the rights at 16c, in such a case, you would have saved even more due to arbitrage. ;)

Gerard said...

I see.. Thanks. Understand your point. Pardon my ignorance..

AK71 said...

Hi Gerard,

Hey, I am happy to share and learn together. :)

bummy said...

I still thinking why sgx would sell off the rights that foreigners are not entitled to. By doing do, FR would earn nil paid rights amount of say 16c (that you bought) + 50c = 66c.

If they do not sell the nil paid rights and allowed investors like us to buy as excess rights, FR would only earn 50c. Hence, I think the chances on securing excess rights share will be similar to AA reit.

Question now is who decides whether to sell the nil paid rights to the market? FR or SGX ?

AK71 said...

Hi bummy,

So, your theory about us being able to get a lot more excess rights this time round has fallen through? :(

Anyway, it makes sense that those who cannot accept/pay for the rights should sell them away. Why benefit unitholders like us with more excess rights? ;)

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