After our previous article on First REIT, I received numerous comments requesting a deeper look into Lippo Karawaci and my thoughts on the rights issue. With the rights issue closing after the Chinese New Year, I wanted to share some insights with you.
What's Happened Since Our Last Article
Here's a brief timeline of events related to First REIT:
- June 2020: Lippo Karawaci Tbk, a major tenant of First REIT, announced that the COVID-19 pandemic in Indonesia had a significant negative impact on their business, leading to lease restructuring.
- 20 July: First REIT issued a profit guidance, warning that the DPU (Distribution Per Unit) would decline by 40-50%.
- 11 August: SGX (Singapore Exchange) raised concerns about the accuracy of First REIT's property valuations, to which the Board of Directors responded that there were no material changes required.
- 29 November: First REIT announced a drastic restructuring of the master lease agreements with Lippo Karawaci, resulting in a significant drop in rentals. This news caused a 20% decline in the share price.
- 28 December: First REIT announced a massively dilutive rights issue, aiming to avoid an imminent default on a repayment obligation of $196.6 million, due on March 1, 2021. The share price plummeted by over 40% in the following days.
- 19 Jan 2021 (New Update): At the EGM, unitholders overwhelmingly approved the restructuring and rights issue. You can find the list of shareholders in the images below.
Should You Consider the Rights Issue?
Before we proceed, I must disclose that I have no personal investment in First REIT and my comments should not be considered as financial advice.
There are two important questions to address regarding First REIT:
- Short-term Perspective: Should you hold or sell First REIT in the short term?
- Long-term Perspective: Should you hold or sell First REIT in the long term?
From a short-term perspective, if I were a shareholder who witnessed the decline from $1 to $0.21, I might consider taking up the rights and hope for a price recovery in the coming weeks or months. However, historical patterns suggest that the period when the rights entitlement starts trading (1st Feb - 9th Feb) is typically the worst time to sell, as many unitholders dump their rights entitlement, resulting in a price decline. But whether this applies to First REIT is uncertain.
When considering the long-term potential of First REIT, several factors come into play, such as how Indonesia manages the COVID-19 situation, the performance of the Indonesian economy and currency, and the overall performance of the Lippo group. These factors are highly unpredictable at present.
Ultimately, the decision to invest in First REIT depends on your personal risk appetite, position size, and tolerance for potential losses. There is no one-size-fits-all answer. However, it's crucial to conduct thorough research, assess the risks involved, and make an informed decision.
Please note that this article was written on 7th February 2021 and will not be updated in the future. For the latest insights and updates, feel free to visit Patron, our stock watch, and personal portfolio. Don't forget to join our Telegram Channel and follow us on Facebook and Instagram to stay connected!
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