Placements, preferential offerings, and rights issues are types of equity fundraising methods commonly used by REITs listed in Singapore.
The following is a table that compares the main differences between these methods.
| Placement | Preferential Offering | Rights Issue | |
|---|---|---|---|
| Definition | An offer of units to certain investors only, including institutional and accredited investors | An offer of new units to existing unitholders on a pro rata, non-renounceable basis (i.e. unitholders cannot trade their entitlement to purchase the new units on the open market) | An offer of new units to existing unitholders on a pro rata, renounceable basis |
| Considerations | Potential dilution to sponsor, but sponsor can receive consideration units or be placed units (with unitholder approval) to minimise dilution impact Usually happens overnight or within 24 hours |
No dilution, assuming sponsor takes up pro rata share Sponsor can increase stake by backstopping preferential offering Usually takes 8 weeks |
No dilution, assuming sponsor takes up pro rata share Sponsor can increase stake by backstopping rights issue Usually takes 6-8 weeks |
| Pricing | Discount capped at 10% to adjusted VWAP | Discount capped at 10% to adjusted VWAP | No limit to discount |
| Pros | Reduced documentation requirements Tighter discount than other equity options Opportunity to deepen institutional register, increase free float and liquidity |
Potential for larger fundraising size with less documentation Major unitholders can increase stake by backstopping excess rights (subject to takeover rules) |
Potential for larger fundraising size Option for existing unitholders to monetise rights Major unitholders can increase stake by backstopping excess rights (subject to takeover rules) |
| Cons | Dilution to existing funds/retail investors Limited fundraising size due to liquidity constraints |
In the event of under-subscription and no underwriting, may risk not raising intended amount of capital More marketing material required (e.g. advertisements to incentivise unitholders) |
Unitholders may renounce rights Longer process with documentation (e.g. Offer Information Statement needed) Unit price may take a long time to recover to current levels |
The material above was written in consultation with Manulife US REIT.
This entry is part of REITsWeek's glossary of REITs and real estate investment terms.