REIT-TIREMENT - REIT Investing & Personal Finance

A blog about REIT investment & personal finance

Monday, September 21, 2020

Key Dates and Figures to Note for Rights Issue and Preferential Offer

Rights issue or preferential offer are common ways of equity fund raising (EFR) for REITs to raise funds, mainly for acquisition or improve balance sheets. The main difference between the 2 is the renounceable rights; in which unitholders could sell their rights in rights issue but couldn't do so in preferential offer. It would be confusing if you haven't experience through on any of these. Today, let's go through what are the key dates and figures to take note.


Key Dates

I will take the current IREIT Global rights issue as an example: 


Too many dates and looks confusing? Lets only focus on those dates which I've highlighted:
i) 24 Sep - If you want to be entitled to rights, you would have to buy IREIT shares (mother shares) from the open market by this day. 25 Sep would be the ex-rights date, which means you are "excluded" for entitlement.
ii) 1 Oct to 9 Oct - This is the trading period for rights entitlement. You could choose to sell away your rights shares or buy more rights shares (arbitrage opportunity) during this period. 
iii) 15 Oct - This is the last day to subscribe to rights entitlement and apply for excess rights. You would need to have sufficient funds in your account for both entitlement and excess.
iv) 23 Oct - This is the first day where you will be able to trade with your new shares.

For preferential offer, as entitlement is not renounceable, so there won't be any trading period for rights entitlement. 


Key Figures

Next, let's look at the key figures for IREIT rights issue.

From what I've highlighted:
i) Entitlement Ratio - 454 units for every 1000 units
ii) Issue Price - S$ 0.49 per unit
iii) Theoretical Ex-Rights Price (TERP) - S$ 0.655. This is only indicative and based on the closing price of a certain date. For IREIT case, TERP calculation is based on closing price S$ 0.73.

Working Example
Now, let's say, you intend to participate in this rights issue, how much fund is required? How do you calculate your average cost per unit? Let's run through a scenario for an anonymous investor, all costs mentioned below include transaction fees: 
i) He is currently holding 10,000 units of IREIT at an average price of S$ 0.803 per unit.  
ii) Before the ex-rights date, he bought additional 3,000 units at S$ 0.69 per unit
iii) During the rights trading period, he bought 5,000 rights units (nil-paid rights) at S$ 0.176 per unit
iv) He subscribed to all his entitlement, which come up to (10,000 + 3,000) x 0.454 + 5,000 = 10,902 units.
v) Finally, he applied and get all the excess rights of 16,098 units which rounds his holding to 40,000 units.
With all these transactions, his final average unit cost is at S$ 0.605 and the total fund required for these transactions is S$ 16,180.

Please refer spreadsheet below which based on the scenario above:

You could make a copy for this calculator through here, modify green cells to suit your needs.


For excess rights, how many units one would get is depends on luck. From what I've understood, you would need to have mother shares by 24 Sept to be entitled to apply for excess. You are not entitled to apply for excess if you only buy the rights shares during the rights trading period. If you are currently holding IREIT shares, but do not want to participate in this rights issue nor sell away your IREIT shares, then you could just sell away your rights during the rights trading period. Or else, your rights (which is equal to money) would be forfeited if you do not sell or subscribe it. 


Finally, hope my spreadsheet could help you in your fund planning for any rights issue and preferential offer. Make a copy and modify it to suit your needs.

2 comments:

  1. how do you buy the rights during the rights trading period? is this the same as buying the mother share? Or is the trading platform supposed to reach out to the shareholder to ask how many excess rights are required?

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    Replies
    1. I will take IREIT Global as example:
      During the rights trading period, you would get new "rights shares" credited to your account for trading. The share names are IREIT GLOBAL R and IREIT Global R1. R refer to 100 units rights shares and R1 refer to 1 unit rights shares.

      After rights trading period end on 9 Oct 5pm. You have until 15 Oct to subscribe your rights and apply for excess. For CDP account, you could do that through ATM. As for custodian account, you would have to contact your brokerage for instruction.

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