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Cambridge Industrial Trust: Friends again.

Friday, March 11, 2011

I chose a rather amusing title for this blog post (some might even say cavalier) and it shows that there are no forever friends or forever enemies in this world.

I was wondering if there would be a sell down of CIT's units today but I guess market participants are savvy to the benefits of this rights issue. The buy queue at 50.5c is very long.

So, I had a choice of either buying up at 51c or just wait and see how much the nil-paid rights would trade for later this month. The biggest attraction of buying up at 51c is that it would allow me to apply for excess rights which would bump up the distribution yield for me if I should be successful in getting some. Going by past experience, chances of success should be rather high.

Now, I am, once again, a CIT unitholder. I bought up 17 lots at 51c/unit today. This is a small investment to get my foot in the door, so to speak. This would guarantee me 3 lots of rights as I would basically apply for excess rights to round up the odd lot. The average price per unit would be (51c x 17 + 42.9c x 3) /20 = 49.785c. With a DPU of 5.07c, it would mean a distribution yield of 10.18%.

Without the attraction of possibly getting some excess rights, I would not have bothered to buy up at 51c today. So, assuming that I am awarded 1 lot of excess rights (on top of what is required to round up the odd lot), that would bring my average price per unit down to 49.457c which would mean a distribution yield of 10.25%. I hope I would be able to get more excess rights than just 1 lot.

I will also be keeping an eye on the price of the nil-paid rights when they start trading. In my last blog post on the subject, I mentioned that the rights should not trade higher than 7c. It would not make sense to buy at a higher price than 7c. In fact, at 7c, I would not bother either because it would mean a final price of 7c + 42.9c = 49.9c which is higher than my expected average price, post rights.

If the nil-paid rights should trade at 4c to 5c, it would be quite attractive as that would translate to 46.9c to 47.9c per unit which would have a distribution yield of 10.58% to 10.81%. Any price less than 4c would be a steal!

Related post:
Cambridge Industrial Trust: 1 for 8 rights issue.

18 comments:

Hubert wee said...

Off topic but..

Sigh..what I said about CMA dropping below 1.70 and STI losing more than 1%..haha..both happened today..maybe I shouldn't say so much next time

Anonymous said...

hi ak.

how do we apply for excess right?
u bought 17 lots so should only be entitled to 2,125 units of rights, how do u apply for the 875 units extra? and normally how high is the chance of getting the extra?

so if i buy 9 lots, can i apply for excess to round up to 2 lots too?

cheers,
Confused!

Isaac said...

Hubert, like what AK said...you a prophet. HHAHA

Anonymous said...

The only problem here is whether CIT able to deliver what it promised. If not mistaken, it failed to deliver its projected yield for the previous round of Right issue.

Anonymous said...

With the Japanese earthquake & Tsunami, I do expect a southern trend in the market for the next week.

SnOOpy168

ortho said...

Hi AK71
By buying 17 lots, the rights you get is 2.125 lot, wouldn't they round up to only 2.3lot instead of 3 lot? Do correct me if I am wrong...

AK71 said...

Hi Hubert,

I would like to see it trade closer to its NAV as per your past target price. ;)

Prophet Hubert, do your stuff! ;p

AK71 said...

Hi Confused,

When the time comes to accept and pay for the rights, I would visit an ATM to do it.

There would be the first entry which is for the rights we have been alloted. This would be followed by a second entry which is for the excess rights we want to apply for. Any application for excess rights to round up odd lots would have priority and is usually filled. That's the experience so far. :)

Yes, you could buy 9 lots and apply for excess to round up to 2 lots too. Good idea. :)

AK71 said...

Hi Isaac,

Good of you to second the motion. ;)

AK71 said...

Hi Anonymous,

You have raised a valid point indeed. CIT did fail to deliver on their promises the last time round. :)

It is also with this in mind that I entered a smallish long position to the tune of 17 lots. Nothing too big. ;)

AK71 said...

Hi SnOOpy168,

Well, sometimes, we find opportunities in calamities. I would stick to what I know and invest accordingly. Lower prices could present some bargain buys. :)

Derek said...

OMG Rights again. I'm getting sick of Cambridge. What happen to all the money from the previous rights issue not to mention issuing excess units as dividends.

Oh well, with 5 lots, I will probably just get one lot of rights (after excess shares).

AK71 said...

Hi ortho,

3,000 would be three complete lots. 2,300 would still be two complete lots and an odd lot with 300 units. They would round it up to 3,000 units. :)

AK71 said...

Hi Derek,

I got sick of CIT many moons ago. Hahaha... ;p

However, after a simple analysis, this rights issue seems like a good thing for existing unitholders.

Despite my misgivings and generally negative opinion of the REIT and especially its CEO, looking at it on a case by case basis, this rights issue could make us some money. :)

Derek said...

Haha AK,

Small investors like us won't make much ba. Would be interesting to see how much their nil-paid rights will be trading.

I am now looking at Saizen and Hutchison but so little money. LoL

AK71 said...

Hi Derek,

Yes, you are right. Just pocket money, I guess. :)

Like you, I am now waiting for the nil-paid rights to start trading and keeping an eye on Saizen REIT as the selling down could present an opportunity to accumulate on the cheap. ;)

touzi said...

Hope you can help to clarfy this. The table on page 14 of the announcement show number of units to be 914,352 before rights. After rights it become 1,046,485. Based on 1 for 8, shouldn't the number of units after rights be 1,028,646 ( x 1.125 ). Moreover the table on page 15 show the current number of units 1,057,065.

Thanks.

touzi

AK71 said...

Hi touzi,

The information on page 15 is correct. Information updated as of 31 Dec 2010: 1,057,065 units becomes 1,189,198 units in this 1 for 8 rights issue.

Information on page 14 is a set of hypothetical numbers which assumed that the transactions were completed in FY2010 (Jan 2010 to Dec 2010).

At the beginning of 2010, there were fewer units in issue. In 2010, CIT did some private placement. Therein is the discrepancy that you wonder about. :)

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