Wednesday, June 28, 2017

How To Play The CDL Hospitality Trust (CDLHT) Rights Issuance

After my post yesterday on CDLHT issuance of the rights and acquisitions, this post is about the few choices you can do to play around exercising the rights or if you dont intend to.

My last participation was for sabana reits which happens not too long ago. In that event, I managed to buy the mother share in my strategy. Things are different now in the sense I am holding that mother share with me this time round.

There are generally 3 levels that you have to watch out for when a Reit announces rights that are not accretive immediately in nature. I define not accretive by mathematically referring to the dilution impact to the dpu before and after.

First Level -  This happens usually within the next trading day when the rights are announced and the mother share will react negatively and fall close to the terp price. This is when investors sell because they simply wants to get out of it.

Second Level - This is when more guidance are released to public what they will be using the funds for. If the acquisitions aren't accretive in nature, then the mother share will further plunge knowing there will be dilution impact to the dpu they are getting. In CDLHT case, they announced the acquisitions and rights issuance at the same time, so it immediately covers the first and second level.

Third Level - This is when the mother share started trading ex-rights and the rights are being traded in the market. The rights are trading typically for someone who wants to dispose their entitled rights or someone who wants to get into the shares by buying the rights from the market.

Then you have two groups of people typically in this sort of environment:

1.) People who are currently holding the existing mother shares (like me).

In my case, my best bet and plan is to apply and engage in plenty of excess rights to benefit more from it. Since it seems this particular rights are not popular in this case, there should be excess rights for ballot.

In my case, I am holding 60,000 shares and thus will be entitled for the rights for 12,000 shares at $1.28. I'd most likely apply an additional 20,000 to 30,000 shares of excess to see how much I can squeeze out of it.

My margin of safety in my cost price is high in this one, so I can do some experiment to see where I end up in this.

2.) People who are not holding the mother shares but want to get some of the actions.

In this case, you have a few options you can take.

The first is buying the mother share before it goes ex-rights and you will be entitled to the rights just like me.

The second is buying the rights in the market and you can then buy the entitlement at $1.28.

The third is simply buying the mother shares right after the whole episode is concluded and done with. That should set the tone how "low" they would go in this particular exercise.

I tried with the third option in my sabana experiment and was very successful.

I hope for the same in this one.

Thanks for reading.

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  1. Hi, would appreciate your advice.

    So based on my understanding, if I were to go for option 3 (buying the mother share after rights concluded), I should look out for First day of 'ex-rights' trading for Rights issue - 3rd July?

    or should I start purchase mother share on 25th July?

    1. I think it should be 25th July where the share price will be adjusted with the rights issue. Is that correct? :)

    2. Yes, it should be after the closing of the last rights acceptance on the 25th jul.

  2. Hi B,

    May I know when will I know how much excess rights I received? Is it also 25 Jul?

  3. Hi Derek

    You should know after 18th jul but before 24th when you need to make payment for any excess rights also.

  4. Hi B

    Suppose I buy only the rights entitlements without owning the mother shares. Will I be able to subscribe for excess rights stapled securities in addition to the rights stapled securities I am entitled to? Eg. I own 1,000 rights and I subscribe for 1,000 rights stapled securities I am entitled to at $1.28. In addition, will I be able to subscribe for 1,000 excess rights stapled securities as well? Thanks for any clarifications. :)

    1. Hi Anonymous

      My understanding is yes you can apply for excess as well. There will be a separate question asking if you would like to apply excess, you can enter as many as youd like but youd unlikely to be given much unless you own many shares.

  5. Hi B,

    Can you help me to understand slightly better about the rights issue. I do not own the mothershare, but is planning to buying the rights in the market at 1.28. Can I know what will happen when I buy the rights from the market? Will that be traded as a normal share in the future and dividends will be received like a normal shareholder? At the same time, would also like to check on where will I be able to get into buying the rights entitlment from the market (via brokerage or ATM?)


  6. Hi B
    I have this also.
    You receive any document regards this right issue.

    Sorry I was first time to the subscription of right issue. I would like to accept the right issue and also purchases any excess if I can.

    So how do I do for this?
    Thank you.

    1. Hi Yeh

      We will receive the IOS in due time, probably around next week.

      Once the application is open you can head down to the atm to apply for the rights and also they will ask separate questions on whether you want excess. You can then make your payment there too as well :)

    2. last time i have free ocbc right. i was stupid and sell away my right once the right started to trade.

      i think CDL H trust can hit 2 dollar in the 1-2 years times.
      just like my ocbc.

      so i am going to subscribe the right and also take excess right.
      so how much excess right we are entitled to?

    3. Hi Yeh

      Excess you can apply as many as you want but with such popularity I doubt one will get much with applying the excess, still no harm trying :)

  7. Hi,

    Can i ask when i can buy the rights issue in the market?


  8. Hi B
    The right price in the market today is $0.30 per unit. If I buy 10,000 units at $0.30 (total pay is $3000), do I need to pay $1.28 per unit to convert this 10000 lots to be the mother share?

    1. Hi Anonymous

      Yes your understanding is correct.

  9. Hi

    I didn't know I can apply for excess. I applied for x shares this morning via atm. Can I apply for more shares again via atm? Thanks.

    1. Hi Collin

      You are not able to apply anymore once youve applied via the atm. They should ask if you want to apply excess or not when you apply via the atm

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  11. Hi, May I know when we will know if we get any excess rights? Thanks