Theoretical Ex-Rights Price REITs Singapore
The Theoretical Ex-Rights Price (TERP) is the estimated fair value of a REIT unit immediately after a rights issue, calculated by blending the current market price and the rights issue subscription price, weighted by the number of existing and new units respectively. This page is for informational purposes only and does not constitute financial advice.
When an S-REIT announces a rights issue, the TERP tells you at what price the units should theoretically trade on the ex-rights date. It is a key metric for assessing whether a rights issue is dilutive or accretive, and for valuing the nil-paid rights you receive.
Table of Contents
- TERP Formula: How to Calculate Theoretical Ex-Rights Price
- Worked Example: S-REIT Rights Issue TERP
- Nil-Paid Rights Value and TERP
- TERP vs Actual Ex-Rights Market Price
- Is a Rights Issue Below TERP Dilutive?
- How TERP Affects Your Decision: Subscribe, Sell or Let Lapse
- TERP and Gearing: Why REITs Issue Rights
TERP Formula: How to Calculate Theoretical Ex-Rights Price
The TERP formula is: TERP = (N x P + R x S) / (N + R)
Where: N = number of existing units; P = current market price per unit; R = number of new rights units; S = subscription price per rights unit.
TERP is the weighted average of the pre-rights market price and the subscription price, weighted by the ratio of existing to new units.
Worked Example: S-REIT Rights Issue TERP
Suppose an S-REIT trades at S$1.20/unit with 1 billion units outstanding. It announces a 1-for-5 rights issue at S$0.90/unit (25% discount to market).
New units = 1,000M / 5 = 200M; Total units = 1,200M.
TERP = (1,000M x S$1.20 + 200M x S$0.90) / 1,200M = S$1.15/unit. The nil-paid rights value = TERP – Subscription price = S$1.15 – S$0.90 = S$0.25/right.
Nil-Paid Rights Value and TERP
When a rights issue is announced, SGX temporarily trades the nil-paid rights as separate instruments. Their theoretical value = TERP minus the subscription price. In the example above, each nil-paid right is worth S$0.25. You can: (1) Exercise rights — subscribe at S$0.90; (2) Sell rights on the open market; or (3) Let them lapse — you receive nothing for lapsed rights.
TERP vs Actual Ex-Rights Market Price
TERP is theoretical. The actual ex-rights price depends on market sentiment and whether the acquisition funded by the rights issue is viewed positively. If the market views the acquisition as value-accretive, the actual price may trade above TERP.
Is a Rights Issue Below TERP Dilutive?
A rights issue is dilutive to DPU if the incremental income from the acquisition is less than the proportional dilution from new units. Check the pro-forma DPU accretion/dilution table in the rights issue circular. If the projected DPU post-rights is lower than pre-rights DPU, the issue is dilutive — even if the REIT total NAV grows.
How TERP Affects Your Decision: Subscribe, Sell or Let Lapse
Subscribe if: the rights subscription price is below TERP and you believe the acquisition is DPU-accretive. Sell rights if: you are cash-constrained but want to capture the value of your entitlement. Let lapse only if the nil-paid rights have negligible value — you will be diluted if others subscribe.
TERP and Gearing: Why REITs Issue Rights
S-REITs raise equity via rights issues primarily to reduce gearing or fund acquisitions without breaching MAS aggregate leverage limit of 50%. In a high-interest-rate environment, many S-REITs issued rights to strengthen balance sheets and cut borrowing costs. A rights issue that reduces gearing materially can be credit-positive even if it mildly dilutes DPU short-term.
Frequently Asked Questions: Theoretical Ex-Rights Price REITs Singapore
What is the theoretical ex-rights price (TERP) for a REIT?
How do I calculate TERP for an S-REIT rights issue?
What is the value of nil-paid rights?
Should I subscribe to an S-REIT rights issue?
What happens to my units if I do not subscribe to rights?
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