Work out what a rights issue does to your holding and choose how to respond.
Find any CDP envelope about a REIT you own that you haven't opened yet, and read the closing date on the form inside now. Each offer sets its own closing date. For example, Keppel DC REIT's 2025 preferential offering had to be accepted by 13 October 2025. Check the timetable in your offer document, because missing that date costs you money.
Inside you'll usually find a form and a very thick offer document. The letter offers you new units at a price under the current market price, in a fixed proportion to what you already own, for example 2 new units for every 10 you hold (an invented ratio). The form uses terms such as excess units, nil-paid rights and TERP. Many holders set the letter aside, let the closing date pass, and discover the cost only afterwards.
Under a rights issue, each existing holder gets the right to buy new units in a fixed ratio to the units they hold now. The price is normally set below the market price. Because every holder receives the same offer relative to their holding, paying for your full entitlement leaves your share of the REIT where it was.
Some rights issues are renounceable, meaning the rights themselves can be sold. For a set period they trade on SGX as nil-paid rights, separately from the units. If you'd rather not put in more money, you can sell your nil-paid rights to a buyer who wants to subscribe and keep the cash.
A preferential offering also offers existing holders new units at a set price, in proportion to what they hold. It is usually non-renounceable, so you can't sell the entitlement. You either subscribe or let it lapse, and if it lapses you receive nothing. S-REITs use preferential offerings often, sometimes together with a placement to institutions, which Lesson 7.3, "Placements and dilution", explains.
Before doing anything else with the letter, pull five details out of the offer document: which kind of offer it is, the ratio, the issue price, the timetable, and how to accept.
When new units are issued below the market price, the price of every unit tends to fall towards a mix of the old price and the issue price. The theoretical ex-rights price (TERP) is that mix, weighted by how many units are at each price.
You work it out in four moves. Multiply the existing units by the market price. Multiply the new units by the issue price. Add the two results to get the total value. Then divide that total by the combined number of old and new units.
Suppose a REIT trades at S$1.00 a unit and offers 2 new units for every 10 held, at S$0.85. For one block of 10 units, 10 x S$1.00 + 2 x S$0.85 = S$11.70 total value. That block now has 12 units, and S$11.70 / 12 gives a TERP of S$0.975.
TERP is an estimate. Once the rights go ex, the real price also responds to other news and to how the market rates the deal. TERP tells you roughly where units should settle if nothing else changes, and gives you one reference point for comparing your options. On that basis, each right is worth TERP minus the issue price in theory.
Apply the same made-up offer to a holding of 10,000 units, worth S$10,000 before the rights issue. You're entitled to 2,000 new units at S$0.85, which would cost S$1,700. You can subscribe, sell the rights, or let them lapse.
Subscribing means paying the S$1,700. You end up with 12,000 units, worth S$11,700 at TERP: the S$10,000 you started with plus the S$1,700 you put in. The general rule for subscribing is that your holding value at TERP equals the original value plus the cash paid in.
Selling the rights leaves you with your 10,000 units, now worth S$9,750 at TERP. Each right is worth S$0.975 - S$0.85 = S$0.125, so your 2,000 rights come to about S$250, and S$9,750 + S$250 = S$10,000. In general, when you sell, your holding value is the value of your old units at TERP plus (TERP - issue price) x number of rights.
Letting the rights lapse also leaves you with 10,000 units worth S$9,750 at TERP, but you get nothing for the rights and are about S$250 worse off. Your holding value is only the old units at TERP, and the amount lost equals the theoretical value of the rights. That S$250 is the value the discounted new units took from your old units.
Subscribing keeps your share of the REIT the same. Selling keeps your value, but in a smaller share of the REIT. Actual sales tend to fall short of the theory: rights often trade a little under their theoretical value and the sale costs brokerage, so you may receive somewhat less than S$250. With a preferential offering, letting it lapse always gives up the rights' value, since you have no way to sell the entitlement.
For a rights issue, subscribing and selling the rights come out close to even on the numbers. For a preferential offering, your choice is between subscribing and letting it lapse. Leaving the letter unanswered is the one option that reliably costs you money.
With those figures worked out, decide using four factors:
Whether you want more of this REIT. That turns on what the money is for, the effect on DPU and gearing, and whether you believe the case, all of which you learned to judge in Lesson 7.1, "Why REITs keep raising money". Whether you have the cash. Whether subscribing would take you past the sub-sector limits you set in Lesson 6.5. For rights issues only, the price the rights are trading at.
The offer document also lets you apply for excess units, which are units other holders did not take up. It sets out how these are allotted, so read that part before you plan on receiving any.
When a letter arrives, the order is: open it and note the deadline on the form; get the kind of offer, ratio, issue price, timetable and acceptance method from the offer document; work out TERP and your holding value under each choice open to you; weigh the four factors; read the allotment section if you're thinking about excess units; and act before the deadline.
In the activity you will work through a different made-up rights issue. You'll calculate TERP and the value of your holding under each of the three choices, so the numbers are familiar before a real letter arrives.
Take a made-up rights issue. Calculate TERP, then the value of your holding if you subscribe, if you sell the rights, and if you let them lapse.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).