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K-REIT: Better buy now?

Monday, November 21, 2011

Unlike the recent rights issue for LMIR, there is little to be gained from selling units in K-REIT and buying the rights. The former so far touched a low of 88c while the latter, a low of 2.4c. 

Buying the rights at 2.4c would mean a total price of 87.4c per unit when they are converted into regular units.

In my blog post of 18 Oct, I said that "given my very small position in K-REIT, I will most probably subscribe to the rights issue. If I were not invested in the first instance, I would not bother buying in now to gain exposure."

By a stroke of luck, any potential investor who took my musings to heart would be happier today.

Why do I say this? Read the relevant blog post here:
K-REIT: 17 for 20 rights issue.

For anyone who wants to invest in K-REIT, buying into K-REIT now at 88c or even 88.5c is a better proposition than buying at 93c, the low of the morning of 18 Oct to be entitled to the rights. That would have worked out to an effective unit price of 93c x 20 + 85c x 17 /37 = 89.32c, post rights.

Of course, buying the rights now at 2.4c or even 2.5c would be an even better proposition as this would mean effective unit prices of 87.4c or 87.5c. However, this option is probably sensible only to people with deeper pockets or people who are with Standard Chartered's brokerage which does not charge a minimum transaction fee.

Not all rights issues are created equal, for sure.

12 comments:

Informative Blogger said...

maybe buy when there is a turn

Informative Blogger said...

2 cent and lower .....

Anonymous said...

Hi AK,

can you breifly explain what does 'rights' mean in reits?

thanks!
jay

AK71 said...

Hi Informative Blogger,

Perhaps. ;)

AK71 said...

Hi Jay,

They would mean the same whether issued by companies or REITs.

If you do not know what rights are, click on this link:

Rights.

Anonymous said...

Compare it with other REITS, even at 85c (i.e 0c rights) the yield is only at 7.9% with its gearing getting as high as it can go...

OFC increases its income by 85.1m, assuming it hits 95% occupancy with similar rentals it'd be about 101m. That's 6.79c dpu i.e 7.9%. Not very attractive compared to other REITS :p

AK71 said...

Hi Anonymous,

With weakening office space rentals in an environment of oversupply that is likely to worsen, I find it hard to be optimistic about K-REIT too.

Cyclops said...

To exercise the rights, you need to pay $0.85 per rights share. The current price of 0.87 is dangerously close to that.

AK71 said...

Hi Cyclops,

The whole issue was unattractive from the onset. I guess there will always be people who might think otherwise. ;)

I now wonder if the unit price could fall to 85c or lower, in which case the rights would be worthless and I would not have to bother with their acceptance. ;p

Cyclops said...

I suppose the K-REIT management wouldn't let the price slip below 0.85 before 5 December.

AK71 said...

Hi Cyclops,

Your guess is as good as mine. :)

AK71 said...

Keppel REIT, the second-biggest office property trust in Asia excluding Japan, is seeking buyers for its 30-story Prudential Tower in Singapore’s financial district, according to two people familiar with the matter.

Keppel REIT owns a 92.8% stake in the tower, which was valued at $490 million as of Dec. 31 by independent valuers, according to the company’s filing on Jan. 20. The property is fully occupied, the report showed.

“Keppel REIT does from time to time receive interest to acquire our properties,” the trust said in an e-mailed response to Bloomberg News queries yesterday. “We will consider all potential divestments and acquisitions, and will make an announcement if and when any such deals materialize.”

The Singapore real estate investment trust is seeking to sell the building after the city’s office rents increased about 1.3% last year following a 1.3% decline in 2012, according to government data. Leasing rates in the central business district bottomed last year and are set to increase in 2014 and 2015, property brokerage Cushman & Wakefield Inc. said in a report last month.

Keppel REIT’s shares fell 0.9% to $1.135 at the close of trading in Singapore, while the benchmark Straits Times Index rose 0.7%.

The REIT is looking to sell older assets to help fund acquisitions, Chief Executive Officer Ng Hsueh Ling told reporters on Jan. 20. The REIT may approach Keppel Land, its biggest shareholder, to buy Keppel Land’s stake in the city’s Marina Bay Financial Centre Tower 3, she said.

- Bloomberg

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