This article by Gabriel Yap, chairman of GCP Global, is republished with permission from GCP Global's Facebook page
 Gabriel Yap is Executive Chairman of his own firm, GCP Global.First Reit's price has dropped a hefty 19.1% from $1.15 to $0.93 in the past 3 days. Hardly in Singapore's 16-year REIT history has a REIT dropped that much in just 3 days other than during the GFC (Global Financial Crisis) in 2008. Even during the Sabana Sob Saga, the price decline was 60% over a period of 1 year. So what are the rumours making the rounds? |
• FACTS
Yes, LK (Lippo Karawaci) has had 2 notches of downgrade by Moody's n Fitch, but the same reports highlighted that their CF should be able to last till at least 3Q2019. From now till then, LK may be able to sell off 1 shopping centre while brotherly love OUE may sell-off its US asset to raise US$750 to help out.
• RUMOUR 1 - LK will default on First Reit rentals.
Investors Note - If it does, it will entail a chain reaction on Siloam, OUE-related n LK-related companies. There is bankers guarantee for 3 months rental, but if there is a immediate default, First Reit would need to make an immediate announcement. Tenant defaults on rental have affected REITs like Soilbuild BT before, but price reaction was less than 4%.
• RUMOUR 2 - Rights issue coming as OUE Healthcare will dump lousy healthcare assets into First Reit.
Investors Note - Any acquisitions would need to seek First Reit shareholders n OUE n possibly LK have to abstain from voting. If it is going to be a lousy acquisition or too huge a discount for a rights, this option can be voted down.
• BEST GUESS WHY THIS MASSACRE IS HAPPENING - The pace and magnitude of sell-down is certainly coming from Institutions. It is apparent that institutions need to sell as LK rating has been downgraded. Otherwise, the fund managers have no room for defense why First Reit is still inside their portfolio. The selling volume in the past 3 days -
Fri: 3.3 m
Mon: 4.67 m
Tue so far: 5.64 m
Japanese institutions hold approximately in total 23 million of First Reit shares, so if all needs to sell, it is almost there.
Key is if other institutions need to sell on the same down bandwagon.
| Update: First REIT put out an announcement this evening, alluding to talks it is engaged in for acquisitions. Click here. |
See also: Gabriel Yap: My investment themes and why I like SingTel