First Reit share price in crisis
What a perfect storm for First Reit share price! In December 2018, I wrote an article “Dark chapter for high-flying First REIT”. In that article, I highlighted the two key risks for First Reit – over-reliance on its Sponsor (PT Lippo Karawaci, LPKR) for rental income and currency exchange risks. Indeed, my worst fear came true when First Reit share price blew up spectacularly in 2020. Should investors run for their lives or fight to the very end?
Make no mistake, COVID-19 pandemic should not be seen as the attributing factor for the collapse of First Reit share price. Troubles actually began to brew way back in 2018 when LPKR embarked on the massive Meikarta real estate development in Indonesia. Costing USD21 billion, this is the largest project that the Riady family has taken so far. The required funding is colossus. As such, the amount involved drained the conglomerate’s cash flow and impacted the liquidity of the Group.
For sure, the moment of revelation was unleashed on 1 June 2020 when LPKR dropped the bombshell of unilaterally restructuring its master lease agreements (MLAs) with First Reit. To add to the mayhem, the Manager of First Reit made a statement on the following day claiming that they were not approached by LPKR on this matter. The disjointed announcements between the Sponsor and S-Reit led to a crisis of confidence in First Reit share price. Consequently, First Reit share price spiralled out of control, falling from $0.90 on 1 June 2020 to the current $0.25.
The implosion of First Reit share price must have given investors plenty of sleepless nights. Of concern is whether First Reit share price will end up like Eagle Hospitality Trust (EHT) shares, which had been suspended since last year.
An EGM will be held on 19 January 2021 to seek the passing of two resolutions – the restructuring of the MLAs and proposed rights issue. In my view, if either of the resolutions failed to be passed, investors should hope for the best but expect the worst for First Reit share price.
In this article. I will share my insights on the outlook of First Reit share price in 2021. Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. Furthermore, I am not vested and have never invested in First Reit before. Whether First Reit share price will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.
First Reit share price faces destiny
With the upcoming rights issue, First Reit share price is expected to slip deeper into the quick-sand. The proposed rights issue will see 791,063,000 Rights Units being issued. This is equivalent to approximately 98.0% of the 807,206,351 Units in issue. In my opinion, rights issue is always a tough call for investors to make. Essentially, it is a case of “damn if you do, damn if you don’t. If investors don’t subscribe to the rights, their shareholdings will [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]
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