2023-03-07 11:14:51 ET
Summary
- IGR has announced a rights offering.
- It will always be more beneficial to subscribe than not subscribe.
- Those investors who do not wish to expand their share count in IGR should sell their rights.
Author's note: This article was released to members of CEF/ETF Income Laboratory as part of the CEF Weekly Roundup on March 1, 2023. Please check latest data before investing.
IGR rights offering
CBRE
CBRE Global Real Estate Income Fund ( IGR ), a global REIT CEF, has announced a rights offering. IGR is not a portfolio position, but some of our members do own this fund and Nick Ackerman (a member of the CEF/ETF Income Laboratory team) has previously covered this ticker for us here: ( public link ).
The following are the key terms of the rights offering:
Title | Subscription Rights to Acquire Common Shares |
Rights Issuance | One Right will be issued for every Common Share held as of the Record Date |
Subscription Ratio | One new Common Share for every five Rights held (1 for 5) |
Subscription Price | Will be determined based upon a formula equal to 95% of the average of the last reported sales price of a Common Share on the NYSE on the Expiration Date and each of the four (4) immediately preceding trading days |
Rights | Rights will be transferable and listed on the NYSE with the symbol “IGR RT” |
Offer Period | March 9, 2023 (Record Date) through April 6, 2023 (Expiration Date) |
Expected Mailing Date for Certificates Evidencing the Right to Subscribe | On or about March 13, 2023 |
As stated above, this will be a transferable 1-for-5 offering, which has an ex-rights date of March 8, 2023 and expires on April 6, 2023 . The rights will be transferable and listed on the NYSE with the symbol "IGR RT."
Subscription strategy
IGR's offering has a very simple subscription formula: 95% of the average closing market price of the fund in the final five days of the offering. What this means is that no matter the current discount of the fund, it will always be economically beneficial to subscribe rather than not subscribe.
Whether the offering is accretive or dilutive depends on whether the fund is trading at a premium or discount. Currently (as of February 28, 2023), IGR is trading at a -5.22% discount, so the offering will be dilutive. At current prices, and assuming full subscription, the NAV/share hit will be -1.57%.
As usual, our suggestion for those holding IGR would be to sell before the ex-rights date, and buy back after. This is especially the case for IGR which is trading at a narrower discount than its long-term averages. The 1, 3 and 5-year average discounts for IGR are -5.00%, -9.78% and -10.95% respectively. History has shown that CEFs generally suffer negative price pressure during the offering period, which is logical because there will be an imminent new supply of discounted shares available.
We have previously observed that in nearly all cases, selling and rebuying a CEF undergoing a rights offering is superior to subscribing for slightly discounted shares (tax issues not considered).
To reduce market risk, one could substitute IGR for another global REIT CEF, such as abrdn Global Premier Properties ( AWP ). However, AWP itself is trading at a rather narrow discount of -3.36% (1-year z-score: +0.84%), so this might not be the best alternative. Instead, the global REIT ETF, iShares Global REIT ETF ( REET ), could be an alternative. The three funds generally move relatively closely together at the NAV level.
For those who wish to hold past the ex-rights date, remember to subscribe with your rights before the expiry date of April 6, 2023, as subscribing will always be more beneficial than not-subscribing. Letting your rights expire worthless would be the worst possible outcome! For those who do not wish to expand their share count in IGR, they should sell their rights on the secondary market to compensate for the upcoming dilution.
For further details see:
IGR: Rights Offering Quick Notes