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First Reit falls as concerns swirl over sponsor

Its 16 per cent tumble in three days to S$0.975 is the lowest since Aug 24, 2012 when it closed at S$0.97

Singapore

FIRST Reit suffered one of the steepest selloffs for a real estate investment trust in recent memory, plunging 16 per cent in just three days, to end at S$0.975 on Tuesday. It was the healthcare Reit's lowest close since Aug 24, 2012 when it ended at S$0.97.

The counter had fallen steadily, closing at S$1.16 on Thursday, S$1.12 on Friday and S$1.04 on Monday. Yesterday, it fell to an intra-day low at S$0.925 before paring its loss for a 6.25 per cent drop.

This came amid concerns over the Reit's main revenue contributor and sponsor, Lippo Karawaci, and despite the Reit's recent announcement of a 0.5 per cent rise in third-quarter distribution per unit for the three months ended Sept 30.

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GCP Global executive chairman Gabriel Yap told Business Times: "Hardly in Singapore's 16-year Reit history has a Reit dropped that much in just three days other than during the Global Financial Crisis in 2008."

The sell-off likely came from institutional investors, he reckoned.

"Reit prices don't usually fluctuate that much... so it's atypical for such a plunge," Phillip Capital analyst Tara Wong said. She said the selloff was likely due to one or more substantial shareholders off-loading their stakes rather than a mass pull-out by retail investors.

She noted that the latest news about Lippo Karawaci was in early November when Fitch Ratings downgraded its rating from B to CCC+ over concerns about its liquidity risks as a result of uncertainty over its asset sales.

This, Fitch Ratings said, has been "potentially exarcebated" by an alleged bribery linked to the Lippo Group's US$21 billion Meikarta property project near Jakarta which Indonesian authorities are investigating.

That report may have weighed on the mind of the one or few shareholders who acted, she said.

Mr Yap added: "It is apparent that institutions need to sell as Lippo Karawaci's rating has been downgraded. Otherwise, the fund managers have no room for defence why First Reit is still inside their portfolio."

Lippo Karawaci had issued a statement saying Fitch's decision was "unsubstantiated" due to its "strong balance sheet" and that the company is making headway in an asset divestment plan that will raise six trillion rupiah in net cash.

This includes the sales, announced in September, of Lippo Karawaci's entire stake in Bowsprit Capital, First Reit's manager, to OUE and OUE Lippo Healthcare for S$99 million; and the sale of its 10.6 per cent stake in First Reit to OUELH for S$103 million. In September, Moody's also downgraded Lippo Karawaci to B3 from B2, with a negative outlook, citing concerns over Lippo Karawaci's operating cash flows at the holding company level.

Analysts told BT that First Reit and Lippo Malls Indonesia Retail Trust may face credit risks due to their reliance on related parties as rental-contributing tenants.

Lippo Karawaci contributed more than 80 per cent of First Reit's gross rental income in FY17, according to Ms Wong. She noted in a previous report that Lippo Karawaci has been paying up more slowly than usual but has so far not defaulted on its rental payments.

First Reit offered no explanation for the selldown; neither has the Singapore Exchange queried it over the unusual trading pattern.