The Market’s Breathing Some Life Into First Real Estate Investment Trust

First Real Estate Investment Trust‘s (SGX: AW9U) unit price fell by more than 10% in total from last Friday’s close to this Wednesday (21 November 2018).

No one knew for sure the exact reasons for the fall. It’s not that the real estate investment trust (REIT) had delivered poor financial results recently. In fact, in 2018’s third quarter, First REIT’s quarterly gross revenue, net property income, and distribution per unit grew by 5.1%, 5.4%, and 0.5%, respectively, compared to a year ago.

Some possible reasons for the fall in First REIT’s unit price that I noted were:

1) A recent downgrade of Lippo Karawaci’s credit ratings (Lippo Karawaci is First REIT’s sponsor and key tenant);

2) Institutional shareholders selling off their stakes in First REIT due to the downgrade; and

3) Uncertainty with the motive of OUE Ltd’s (SGX: LJ3) and OUE Lippo Healthcare Ltd’s (SGX: 5WA) involvement in First REIT.

Update to the market

As of the time of writing today (22 November 2018), First REIT’s unit price is up 2% to S$1.01 apiece from yesterday’s close at S$0.99. The market could be breathing a sigh of relief.

Last night, the REIT’s manager announced that it is unaware of “any material information which has not previously been announced or otherwise made known in the public domain from any source that could have caused the volatility in the unit price of First REIT.” The manager added that it is continually exploring “potential acquisition opportunities as well as the potential means of funding these acquisitions,” and that equity fundraising is possible to fund such acquisitions.

Nothing has been cast in stone at the moment when it comes to the acquisition opportunities, and the REIT’s manager will provide more updates if there are any material developments.

Now what?

Raising funds through the stock market could come in the form of (1) a rights issue, which gives existing unitholders the right to buy more shares, or (2) a placement exercise, which would see First REIT offer its units only to a select group of investors. There are pros and cons to each equity fundraising method, but it is futile to discuss them now since First REIT’s acquisition plans are not known yet.

For now, though, it looks like Mr Market’s happy that it’s business at usual at the REIT. At First REIT’s unit price of S$1.01 currently, the REIT has a price-to-book ratio of 1 and has a distribution yield of 8.5%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended units of First Real Estate Investment Trust. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.