Theoretical Ex-Rights Price (TERP) REITs Singapore

The Theoretical Ex-Rights Price (TERP) is the estimated fair value of a REIT’s units 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 to raise capital — for acquisitions, debt reduction, or working capital — 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.

TERP Formula: How to Calculate Theoretical Ex-Rights Price

The TERP formula is:

TERP = (N × P + R × 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.

A simpler way to remember it: 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 × S$1.20 + 200M × S$0.90) ÷ 1,200M = (S$1,200M + S$180M) ÷ 1,200M = S$1,150M ÷ 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 (ticker usually ends in “R”). Their theoretical value = TERP − S (subscription price). In the example above, each nil-paid right is worth S$0.25. If you hold 500 existing units (1-for-5 ratio), you receive 100 nil-paid rights worth S$25 in total.

You can: (1) Exercise rights — subscribe at S$0.90 and receive new units; (2) Sell rights on the open market at ~S$0.25 each; 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, overall REIT sector movement, and whether the acquisition (if any) funded by the rights issue is viewed positively. If the market views the acquisition as value-accretive, the actual price may trade above TERP. If the deal is viewed negatively or the rights price is seen as too low (excessive dilution), the unit may trade below TERP.

Monitor the S-REIT yields of comparable peers to assess whether the post-rights price is fairly valued.

Is a Rights Issue Below TERP Dilutive?

A rights issue is dilutive to DPU if the incremental income from the acquisition (funded by the rights proceeds) 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’s total NAV grows.

Accretive rights issues (where DPU increases) are generally viewed positively; dilutive ones can pressure unit prices below TERP.

How TERP Affects Your Decision: Subscribe, Sell or Let Lapse

Subscribe if: the rights subscription price is below TERP (which it almost always is — rights issues are priced at a discount), you believe the acquisition is DPU-accretive, and you are comfortable with your increased position size. Subscribing avoids dilution and locks in the discount.

Sell rights if: you are cash-constrained or do not want a larger REIT position, but still want to capture the value of your entitlement. Selling the nil-paid rights on market is equivalent to receiving the value of the discount without committing new capital.

Let lapse only if the rights market is illiquid or the nil-paid rights have negligible value (e.g., subscription price ≈ TERP). You will be diluted if others subscribe — your ownership percentage falls.

TERP and Gearing: Why REITs Issue Rights

S-REITs raise equity via rights issues primarily to reduce gearing or fund acquisitions without breaching MAS’s 50% aggregate leverage limit. In a high-interest-rate environment (2023–2026), many S-REITs issued rights to strengthen balance sheets and cut borrowing costs. A rights issue that reduces gearing materially (e.g., from 45% to 38%) can be credit-positive even if it mildly dilutes DPU short-term.

Frequently Asked Questions: Theoretical Ex-Rights Price (TERP) REITs Singapore

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