First REIT share price has crashed till S$0.535 as at 28th August 2020. While many REITs have recovered from the record low during the stock market crash in March 2020, First REIT has once again sunk to another new trough. From 2nd Jan 2020 price of S$1.00 per unit, the current price of S$0.535 per unit means a whopping 46.5% plunge in equity value of investors and is a total disaster.
I am glad that I have bite the bullet and sold off all my First REIT units in June'20 from my margin portfolio as well as cash portfolio ever since the shocked announcement by the sponsor asking for restructuring of the entire rental leases without informing First REIT management team. In May'20, Lippo Malls Indo Retail Trust was downgraded by Maybank Kim Eng from Grade A to a Non-Marginable status. I have a bad feel that First REIT maybe added to the non-marginable list if things still do not improve for Lippo Karawaci and Siloam Hospital Group.
SGX Query on valuation of First REIT investment properties for half year ending 30 June 2020
On 11th August 2020, First REIT responded to SGX query on valuation of its investment properties. I was disappointed to see that the issue of the rental restructuring process requested by Lippo Karawaci has no definitive conclusion. Hence First REIT's management team argument to SGX query is that since there is no certainty of new terms and conditions being reached, there is no basis for the Manager to re-assess the carrying value of the properties at this juncture. First REIT appeared to have backed down from the previous stronger stance of using contractual obligation of long term contractual commitment of the hospital properties and the soft response appears to indicate that if Lippo Karawaci financials deteriorated further, a restructuring may be inevitable despite the majority of original lease agreements still not expiring.
There appears to be much undercurrent among the Lippo Karawaci group. Without more news being released on the previous request for restructuring of all the leases and also the new terms for the upcoming 5 hospitals due for renewal, it is indeed hard to place a concrete value on the net worth of each unit. The current 80% subsidies by the sponsor for the rental payments is an unsustainable commercial model and it appears that Lippo Karawaci is no longer supportive of such an arrangement and is trying to exit the long term contractual commitments in order to save itself from huge cash outflow to First REIT.
Please also see previous postings on First REIT:
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