A Tale of Two AGMs ( Fraser Commercial REIT vs Fraser Hospitality Trust )


<Image credit to Vitoriaminis.com>
Attended Fraser Commercial Reit AGM this morning (in spite of heavy downpour , the turn up was quite good ) and also Fraser Hospitality Trust AGM on last Thursday.

From time to time I did attend company’s AGM and try to get some insight of what’s going on in the company, especially if there is any particular issues which I think there might be important to know or get views from other fellow investors while trying to get the answer from management.


Why AGM, EGM are Important


Below are few Links which may give you some reasons or ideas on why attending AGM are  important.

     1)  From ShareInvestor Education Series ( click )
                2)  From Fool.sg ( click )
                3)  From TheFifthPerson.com ( click)

I really enjoy the questions asked by some of the shareholders which are “ acute “ and having good insight on some issues ( since I am not a “figure man” ) . They asked very detail questions on each asset’s return ( NPI ) , step up lease , tenant’s leaving which may affect the future NPI , debt’s expiration and finance cost etc.

For example many questions been put up on effect of potential Hewlett Packard leaving Alexandra Techno Park …the risk or opportunities ? Although this type of question might be difficult to answer and subjective , I think the management is also try their best to give a most satisfactory answer.

Some question put forward may be on “hindsight bias “ ,, eg ,,why we did this or don’t do that , on certain issue , such as question on impact of Brexit on asset hold by Fraser Hospitality Trust and potential loss of income due to tumbling of  “British Pound” after Brexit.  As explained by the Chairman , these asset were there from day one of IPO and at initial stage prior incident of Brexit , these asset were given good return but situation change after mini-black swan events of Brexit.


Mood of Meeting vs Your Investment Return

I think the mood of the meeting and questions asked also depending on your overall investment return on that particular stock.

For example on FHT , although the management has repeatedly reiterated that the new acquisition on Australia’s asset recently was more on “defensive strategy “ as to cushion the impact of Brexit  on lower return expected from UK’s asset and also improving overall gearing.

But since “right” issue is deem very bad and “value destructive” by the market as far as REIT is concern , the rationale of issuing right to purchase the asset been dwarfed by the ”plunging share price “ recently after the announcement and post right.


Right issue for REIT = Weapon of Mass Destruction


For some investors , right issues was deem as “taking back” whatever distribution given to shareholders in the past , it also affect another group of investors ( retiree ) who are depending on cash flow from dividend for their daily / monthly expenses …

For some investors who are in the phase of accumulating wealth and with extra war chest in hand , right issues might be an opportunity for them as they could add more units with lower cost ( due to irrationality of market which caused the price to drop drastically ), and reap the benefit of lower average cost eventually when market turn around. Of course it also depending what types of asset they are buying , and if it’s “yield-accretive “ or having potential of growth factors.

Some shareholders start to question whether it will be better off to use “hybrid” of perpetual bond + some private placement + some debt instead of right issue under current market situations.

Well, there is no right and wrong in any methods of debts instrument in buying asset and our mood will definitely swing depending on our ROI on that stock. Similarly , my XIRR for FHT is -3.9% since 2015 (as of today’s closing price) and for Fraser Commercial Reit = +12% ( since 2011 ).


Was it the reason causing my two different mood of attending these AGMs ? and what is your opinion of frequent right issues carried out by REIT ? 
Some investors even said that REIT are building on "fundamental flaw " of buying long term asset ( property ) by using short term loan !" 


Cheers !!






“Try to buy assets at a discount than to buy earnings. Earnings can change dramatically in a short time. Usually assets change slowly. One has to know much more about a company if one buys earnings.” By Walter Schloss







PS: Since my investment in FHT still consider short period of time , may be is worthwhile to give the management another chance to perform in the long run….??

Append below my XIRR for FHT and Fraser Commercial REIT :




<Remark; starting to take up the scrip dividend from 2016 >





Comments

  1. The problem of right issues will affect those retirees who have already spent those past dividends for living expenses. Not sure how many retirees seriously think over it?

    ReplyDelete
    Replies
    1. Hi Uncle CW8888,
      Yes ! Indeed, that will need to be one of the main consideration for those require a consistent cash flow such as retirees,,,
      Cheers!!

      Delete
  2. Hi STE

    I think its fairnto give fht a longer time frame a chance for redemption. Their industry is not the easiest to handle and fcl is in the mood to recycle capital. So we'll inevitably see a rights issue once in a while, as long as its not destructive in the long term

    ReplyDelete
    Replies
    1. Hi B ,
      Yes ! The hospitality industry is very cyclical in nature ,,, I am also quite confident on the management's performance and hope things may change once the industry cycle turn to more favorable ... :-)
      You are right that we will need to see this in a longer perspective.
      Cheers !!

      Delete

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