Dear Mr. Tan,
I have invested in REITS. Due to the recent right issues carried out by several REITS, I have been forced to buy more shares or suffer dilution. Can you advice on:
1. Could you please kindly advise if it is worthwhile to buy & hold REIT for many years (i.e. 10-20 years)?
2. Should I switch into high dividend yield blue chips, as they do not issue rights often?
REPLY
All shares are subject to rights issue, i.e. not just REITs but other shares as well.
If you are not able to take up the rights issue, you have the option to sell the rights. The amount that you get for the rights should be almost the same as the amount of dilution in your shares.
For example,
Price of shares before rights issue $5
Rights issue (1 for 1) at $3
Share price after rights issue, due to dilution: $4
Value of rights, if sold in the market, should be $1.
The value of the rights is usually the same as the loss due to dilution, but it may vary somewhat, due to market condition.
Whether you should invest in REITS or blue chips is a different matter. Usually, it is better to be well diversified, e.g. buy a ETF of shares and REITS (if available).
The rights can also be viewed as a call option. If the call option is not exercise, it will expire worthless. However, prior to expiry a call option value is = intrinsic value + speculative value.
ReplyDeleteIt is the speculative value which is not easy to determine as it depends on market condition and time to expiry.
Hmm ... sell the mother share; then subscribe the rights and apply for excess. >>> usually, you will make a bit of money.
ReplyDelete