Friday, December 18, 2015

ARA rights are out

ARA right shares results are out. It might not be out officially, but I saw the amount of refund from my bank account and deduced the amount of rights shares that I got it. To double confirm, I will have to check my CDP account to see that the shares are physically transferred into the account. Either way, I'll receive a snail mail from them to inform me of the rights results.

ARA had been pretty good to me but I cashed out and subsequently left with 550 shares before the rights exercise. Many transactions in and out resulted in me having a very odd average share price of $1.39217 for my 550 shares. Don't ask, it's complicated, lol

Here's the details:

Shares before rights: 550 @ $1.39217
Entitled rights: 99
Excess rights applied: 901

Success rights acquired: 650 shares @ $1.00 per right shares
Total number of shares: 1200 shares (550 + 650 = 1200)
Total cost of shares: $1415.69 (550 x 1.39217 + 650 x 1)

Ave cost of shares after rights:  $1.17974

A few interesting take-away:

1. Rights are great if you are super minority shareholders. I'm talking about less than 1000 shares. I have 550 shares before the rights issue but ended up having 650 rights, which is more than the amount of original shares that I have. It's crazy that I get to reduce the average price of my shares so much because of the rights exercise.

2. If you have very little shares and the company started a rights issue, apply somewhere between 5 to 8 times of your entitled rights as your excess rights. Don't know what I'm talking about? In my case, I'm entitled to 99 right shares, so that means the minimum I will get is 99 shares. It's entitled, so I will get it no matter what. But I can also apply for more rights beyond what I am entitled, and that's called the excess rights. 5 to 8 times of my entitled rights of 99 shares means 495 to 792, so I should apply that amount as my excess rights.

However, if you have more like 10k to 20k shares, then this wouldn't work anymore. Usually you get an excess rights less than the amount of entitled rights. Maybe applying an excess rights equivalent to 1 to 2 times is more than sufficient. I don't know how many shares you need before the 'model' changes, but these are all based on actual experience and observations.

So in other words:

Small holdings: apply 5 to 8 times your entitled rights as excess
Large holdings: apply 1 to 2 times your entitled rights as excess

Nobody is going to stop your from applying 100 times your entitled rights of course, especially if you have spare cash sitting there doing nothing at all.

3. The share price of ARA had been dropping closing and closer to the rights price of $1.00. It is always like that, no matter how strong the company is. The only difference is that for stronger company (hopefully I can say, "like ARA"), the share price will go back up again. ARA has a lot of corporate actions, like bonus shares (I recalled they had it twice?) and now it's the rights. Very complicated company to keep track of your average share price if you don't keep records diligently. After a few bonuses and rights and what not, you won't know your entry price anymore!


Rolf Suey said...

Hi LP,

I really like ARA esp how the founder weather the GFC n sars crisis. Unfortunately, the share price had been battered down now. From peak ~1.9 to now 1.14.

I bought at 1.7 originally then sell off entirely and at loss at 1.4! I continue to scoop some below 1.3. Now it's 1.14 (after rights). I think I will continue to scoop very slowly over time.

y did u buy into ARA?

la papillion said...

Hi Rolf,

ARA has a good business of taking a cut from managing reits. Reits have debts and they will go up and down, but ARA is one level higher than reits - that of managing them. I think their business will be good no matter whether the reits are good or bad.

Whatever shares I had left are left over from the various bonus shares. In the past it's odd lots, but now with the reduced lot size, they changed status lol