The share price of First REIT plunged these 2 days. In fact after its latest XD on 30th Oct 2018, price fell from $1.21 to today intra-day low of $0.92, a drop of almost 24%. This was due to the concern of its main revenue contributor and sponsor Lippo Karawaci's credit rating being downgraded by Fitch by 2 notches. Refer here for detail write up.
First REIT is one of my biggest holding in my portfolio, 30.29% allocation. Naturally, the plunge in share price should get my worry or wondering should I divest (total or partial). However, First REIT is in an unique situation in my portfolio that actually don't do anything is the best choice.
July 2017 I've achieved a mega milestone in First REIT (refer here), the investment has became MATHEMATICALLY IMPOSSIBLE TO LOSE MONEY. This was because the amount of dividend I've collected since 2007 stands at +114.82% (was +100.50% last July). That is to say through the collected dividend I've gotten back all the initial capital that I've put in. Whatever I'm holding now is just floating profit, free holding if you want to look at it this way. Thus, the plunge in share price past days only mean my floating profit gets lesser only.
Some statistic on my First REIT holding. Holding price is at $0.5973 (after past rights issue and scrip dividend). Its reported a total of 8.6 cents DPU for FY17 and that translates to 14.4% dividend yield that I'm getting now.
What If I Divest (Full/Partial)
In this scenario, at today closing price of $0.975, I will have a realized capital gain of 62.85% plus a dividend return of 114.82%, that a total of 177.67%. So what to do with that sum of money ? Naturally, I would try to find another S-Reit or stock to invest in and if can't find any that sum of money will just sit in the bank to earn interest (probably 0.5% pa for a conservative figure). Question is can I find another S-Reit that offers me 14.4% dividend yield and for the next 10 years I could get back the invested capital through dividend ? Alternatively, can I find a stock in which I invested in and 100% assure it will not go into unrealized capital loss for the next 5 years ? I think the answer is pretty clear -- NO
What If I Do Nothing
In this scenario, I will just continue to collect dividend at a yield of 14.4%. Now assuming the very worst case (which probably won't be possible), its distribution get hit due to Lippo Karawaci. Since around 82.4% of its rental income was contributed by Lippo Karawaci and its subsidiaries as stated in 2017, the dividend yield should drop to around 2.53%. Still higher than bank interest. Share price naturally will fall to reflect this scenario. However, due to the fact that I've already gotten back all the initial capital, regardless what the share price plunge to there is still profit and absolutely no chance of suffering a loss.
From a rational perspective, divest and move into another S-Reit/stock will add another uncertainty or risk to my portfolio as nobody know the new investment will turn out. Stay put do nothing meanwhile indicates that my uncertainty and risk are being contained since it is mathematically impossible to lose money. Furthermore, with the help of Technical Analysis, I could use my holding to flip up some profit due to the volatility of the share price.
From fundamental perspective, healthcare sector is the mother of all defensive, business wise it is of lower risk than other sectors, even lower risk than running a hospital. Lippo Karawaci with its debt problem appears to be needing First REIT more than the other way round. Thus, it is rather stupid and unwise for Lippo Kawaraci to screw up on its cash cow.
So, neither do I need to be concerned about the plunge in share price nor take any action on it is the best choice rationally.
