Independence Realty Trust Plunge – What if You Were a Current Owner?
By: Tim McPartland,
We wrote yesterday about Bargain Hunting the MLPs. The same situation typically holds true with REITs and secondary offerings–prices plunge only to recover a fair portion of their loss and in this recovery there is opportunity for the nimble.
Our long time reader ‘Howard’ today reminded us of the irritation these share offerings bring to him and many current holders of shares (including ourselves). Howard suggested that these companies should be required to give current holders the ‘right of first refusal’ on the new shares–we don’t disagree, but at this point in time that isn’t the way it is and as a current holder one simply has to make the best of the situation—maybe by buying more shares after the plunge and selling upon the subsequent recovery (although maintaining the original base position).
Looking closer at the case of Independence Realty Trust (ticker:IRT) we had an announcement of a share offering after the market close on Monday, a plunge of the shares on Tuesday (although only 4% initially) and a further plunge of 3-4% on Tuesday after the pricing of the new issuance was announced at a low $9.50/share. The shares gained their footing on huge volume of over 7 million shares and moved back up to $9.74/share where it closed.
Here is how we reacted. Yesterday, on the first plunge, we purchased 500 shares at ($9.85/share)–we realized we were too early as pricing was not yet announced–thus we turned around and sold the shares at $10.05/share on the short bounce that occurred minutes later. Then today as the shares opened lower at $9.40, but slowed regained their balance and slowly moved higher we made 2 purchases – one of 400 shares and one of 500 shares—both at $9.51/share. Remember we had written that IRT was one of our favorite small, new REITs–thus we purchased a larger position than we normally would in this situation. We continue to hold the shares and they moved a bit higher in the aftermarket (to $9.76) thus we have a decent a quick profit at this point in time. We will sell most of the shares tomorrow–hopefully.
A couple points should be made on these trades. 1st–pay attention–I didn’t yesterday, but luckily was able to back out quickly with a small profit. 2ndly–All of this activity took place in a relatively short amount of time, so make sure you are able to monitor your positions.
Bret Jensen on Seeking Alpha (free membership required) wrote on article today which pretty much mirrors what we have written about. (free membership required).