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“Falling Knife” of the Week: First REIT

First reit logo First Real Estate Investment Trust (SGX: AW9U), or First REIT for short, has taken a 14% haircut this week and it has infamously stolen the top spot for “Falling Knife” of the Week. The plunge has shaved off $116.4 million in market capitalization at the time of writing.

First REIT is Singapore’s first healthcare real estate investment trust and is sponsored by PT Lippo Karawaci Tbk, Indonesia’s largest broad-based listed property company. The REIT owns 14 properties with the bulk of it – 10 to be exact – located in Indonesia.  The properties in Indonesia take up 94.8% of the property portfolio in terms of property valuation, as of 30th June 2013.

Most stocks with businesses connected to Indonesia have been badly hammered this week. The rupiah against the US dollar has plunged to the weakest level in four years and the Jakarta Composite Index has slid close to 20% from its record close on May 20, amid concerns that the quickest inflation in four years of 8.6% in July will spur the central bank to tighten monetary policy further. Worse-than-expected economic data in the form of widening current-account deficit to a record in the second quarter has also spooked the markets. The U.S. Federal Reserve’s plan to withdraw stimulus soon has further added fuel to the fire.

First REIT’s gearing ratio is 33.4% as at 30th June 2013. The regulatory limit is 35% for REITs, like First REIT, that do not have a credit rating. If the Indonesian economy goes into a recession and First REIT’s assets get revalued south, the gearing ratio may head north, breaching the regulatory limit unless First REIT obtains a credit rating. On the bright side, as First REIT both collects its rentals and pays dividends to unitholders in Singapore dollars, the weakening rupiah is unlikely to affect the REIT.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.  Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.