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

Attended Fraser Commercial Reit AGM this morning (in spite of the heavy downpour, the turn up was quite good ) and also Fraser Hospitality Trust AGM last Thursday.

image credit to biztreemgmt.com

From time to time, I did attend the company’s AGM and try to get some insight into what’s going on in the company, especially if there are 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 is Important

Below are a 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, a tenant’s leaving which may affect the future NPI, debt’s expiration and finance cost etc.

For example many questions have been put up on the effect of potential Hewlett Packard leaving Alexandra TechnoPark …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 issues, such as the question on the 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 assets were there from day one of IPO and at initial stage prior incident of Brexit, these assets were given good return but situation change after mini-black swan events of Brexit.

The 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 the UK’s asset and also improving overall gearing.

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

The right issue for REIT = Weapon of Mass Destruction

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

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

Well, there is no right and wrong in any methods of debts instrument in buying an asset and our the 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 moods of attending these AGMs ? and what is your opinion of frequent right issues carried out by REIT? 
Some investors even said that REIT is building on "fundamental flaw " of buying long term asset ( property ) by using short term loan !" 

Cheers !!


Quote Of The Day :

“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 a short period of time, maybe 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 >