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QuestionsCategory: Valuation QuadrantPreferred Share
Swee Hui Yap asked 3 years ago

https://www.businesstimes.com.sg/companies-markets/corporate-digest-673

Recently Manulife US Reit is offering preferred share of 22 units for every 100 units held. In that case, what will be the consequences if I didn’t opt for the preferred share? My stock holding will be diluted with more shares being issued.

What are the considerations to be made as to whether to opt for preferred share?

Thank you so much!

Jieren Zheng replied 3 years ago

Just as a tiny correction, it is a preferential offering. If DPU is accreditive, I think if you don’t subscribe it should be ok. Kinda similar to rights issue in a way.

As for considerations, depends on your cash position, concentration, discount and maybe even opportunities elsewhere.

Victor Chng replied 3 years ago

Thank you JR

Jieren Zheng replied 3 years ago

Welcome :)

1 Answers
Victor Chng answered 3 years ago

Hi Swee Hui,
 
When REITs issue preferential offering are usually less dilutive than the other type of raising fund method because they usually issue less than 10% discount. Hence, the investor should not get diluted much and can choose not to subscribe to the preferential share. But if the investor’s purchase price are much higher than the preferential price which give a higher discount of more than 10% than the investor should subscribe to the preferential offering to prevent dilution.