toothpaste asked 10 months ago
Hi Rusmin,
In the REIT Manager module, you mentioned your preference for Preferential Offerings over Rights Issues when a REIT undertakes capital raising (around time 27:10). Could you please explain why in greater detail?
Assuming a retail investor chooses not to participate in the capital raising:
- Both options allow the investor to opt out.
- Preferential Offerings are typically priced at a smaller discount to Rights Issuance.
- Rights Issues might come with a larger discount, leading to greater dilution. However, retail investors can usually sell their rights, which may help offset the dilution.
I’d appreciate your insights on the rationale behind your preference.
Thank you!
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1 Answers
Rusmin Ang Staff answered 10 months ago
PO usually issued at good valuation, at least not discount to NAV or at most, slight discount. This method would then allow the REIT to issue less units to acquire properties and potentially make the whole exercise more accretive for unitholders. Rights, on the other hand, often issued at huge discount. If unitholders do not take them, they will be heavily diluted. Yes, they can sell nil-paid rights to offset some dilution. Even if Rights are being taken up, the historical DPU will see a significant drop. That's why I often prefer the Rights path because it will simply destroy the entire track record of the manager.
Rusmin AngAs an investor, I like the option of not having to take the additional units and not being diluted. I prefer to invest in REIT at my own pace, not at the pace that's dictated by the manager because they need money.
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