Some readers would remember that I announced a fair value of 80c per unit for First REIT. This was on 1 Dec 10. In that blog post, I made the following comments and also did some calculations:
A friend called me yesterday and said he might buy into First REIT with a view of getting more excess rights. I gave him my full support and told him he is likely to make money in this exercise. It turned out that he didn't get any yesterday.
Assuming that he had bought 4 lots at 98.5c /unit, his average price including rights units would be:
98.5 x 4 + 50c x 5 /9 = 71.55c /unit
At the estimated annualised DPU of 6.4c for 2011, it would mean a yield of 8.94%. Not bad. If he managed to get 1 lot of excess rights later on, the average price would be 69.4c which means a yield of 9.22%! I like this.
Now, for people who divested their stake during CR when First REIT's price closed in on its then NAV/unit, is buying back at the current price of 76c silly? It would seem so as not selling their stake then would mean a lower average price now in the region of 70c to 71.5c per unit. They would also have been eligible for excess rights which would have lowered their average price further.
Of course, buying more, increasing their long position, when the counter's unit price plunged to 66c XR would have been doubly rewarding.
However, recognising the strength of this REIT and believing that it is undervalued even at 76c, it might be a good move for some to invest in the REIT once more or to increase their exposure, whichever the case may be. This is from a purely FA perspective, of course.
Personally, I am not adding to my long position. Why? I have a sizeable exposure to this REIT with costs ranging from 42c to 96.5c. 42c? Yup, those I bought during the last bear market. 96.5c are those I bought when the counter went CR which are really 70.67c after taking into account the rights. So, unless the price is at a very attractive level, I have no compelling reason to buy more.
Now, I am going to look at the technicals which are looking interesting.
On the daily chart, right away, we see that the Bollinger Bands are squeezing. An imminent change in direction after a period of low volatility? Which way would it go? The MACD has been falling as a bearish crossover was completed sessions ago. Momentum is weakening. Immediate support is at 75c.
I turn to the weekly charge to look at the longer term technicals. A white spinning top 4 weeks ago was followed by a doji which was in turn followed by a hangman. All possible reversal signals. Certainly, price action has been pushing the upper band and seems to have grown tired. Lower highs on the MFI confirms the tiring longer term demand. Although 75c has been identified as the immediate support in the daily chart, see how the weekly chart suggests that strong support is at 72c? This is where the rising 20wMA would be approximating soon. Caution is advised. There could possibly be a better time to buy more.
I continue to believe in the strong fundamentals of First REIT but at 76c, given the current technicals, I am not a buyer.
Related post:
First REIT: XR and fair value.
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