Friday, April 15, 2016

Post-rights price recovery period for reits

If you get into reits, make sure that you have some spare warchest to prepare for rights issue. It's not a matter of if, but a matter of when. In the past, if you do not have any reits yet, I will recommend buying the mother shares during rights issue so that you have the ability to hack your way to capitalise on the excess rights application process. I blogged various articles in this blog but let's just put down the two most important ones:

1. How to get the most out of a rights exercise
2. How to hack AIMS AMP Capital Industrial reit Rights Exercise

But recently with the change of the board lot from 1000 shares per lot to 100 shares per lot, I think this strategy is getting outdated. The amount of excess rights will be based on the lower 100 shares instead of 1000, which means you won't get much out no matter how you hack it. It's about 10 times difference. Not very effective.

If you look back in the chart history of those reits that had undergone rights exercise, you'll see that the price will drop immediately following the date of announcement of the rights. Then, it'll start to rise up. This happens every single time - the key difference being how long the drop will be, and how long it'll take for the price to go back up to pre-rights price. This means that if you have not bought any reits yet and had intention to buy, buying during the rights exercise, specifically after the announcement of the rights, will be a good time to take advantage of a short temporary inefficiency to get some. You might want to ignore all the rights and just get it after the mother share goes XR. It'll be less troublesome and you'll likely get a lower price out of it anyway.

Take note that the price are all post rights price. It's too troublesome to convert back to pre and post rights price, but this doesn't dilute the force of the argument 

The table above shows the rights exercise I've taken part in recent years. Here are some observations:

1. It takes anytime between 1 month to 1.5 yrs to get return back to pre-rights price. This means you have plenty of chances after the announcement of the rights to get the reits, assuming that the fall of the price is solely due to the rights issue. In real life, it's most definitely not. There are macro trends and various other factors that contribute to the rise and fall of any stock prices. And, the sooner you get it, the faster you can be entitled to the stream of income from dividends declared. So wait, but not too long.

2. Aims took the record for waiting 1.5 yrs to recover. It may be an outlier, considering that from my limited list of rights exercise participated, most take about 1 to 2 months to recover back. Talking about reits or trust here, not companies. ARA is not a reit, though it's a reit manager, so probably will be more enlightening to compare the rights issue of non reits companies separately.

3. The other factor I didn't take into account is the dilution of each rights. Some are diluted more, some are less, and I think that might be a contributing factor in deciding how long duration before the price goes back up to pre-rights price. I'm not an academic, so I'm just interested in the final verdict of what to do.

And what do we do? If you haven't had any shares in a reit, consider buying after XR and skip all the excess rights and what not. The price is likely to be cheaper even with all the excess rights included in. If you already had shares and wanted to accumulate more, consider waiting for them to announce rights. The risk is that your cash will be rotting while you wait, and the other is that some reits just don't have a habit of issuing rights - like Suntec. So you can wait till the cows come home lol


My Sweet Retirement said...

The recent OUE HTrust Rights issue caught me by surprise. It was priced at 20% discount.

la papillion said...


Ya, I saw that. Was planning to get it post rights but changed my mind haha!

K said...


I am curious. Among the readers here, do you prefer to buy just before or just after XD?