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Monday, August 17, 2020

Lippo Malls Indonesia Retail Trust Analysis @ 17 August 2020

Basic Profile & Key Statistics

Lippo Malls Indonesia Retail Trust (LMIRT) invests in retail properties in Indonesia. 


Lease Profile

Occupancy is low at 88.2%. WALE is slightly short at 3.8 years, note that its WALE is weighted by NLA. From the latest presentation, 36.3% of the lease will be expiring in 2024 and beyond without breakdown, if we consider before 2024, then the highest lease expiry of 13.7% falls in this year as well as year 2022. All of its income is received in IDR. Weighed average land lease expiry is short at 33.3 years.


Debt Profile

Gearing ratio is healthy at 35.7%. Cost of debt is high at 5.8%, which is very normal in developing countries. Fixed-rate debt is high at 95.2%, which is less favorable in a low-interest environment unless fixed-rate at low cost of debt. 100% of its debt is unsecured. Interest cover ratio is low at 3.33 times. WADE is moderate at 2.8 years where the highest debt maturity of around 50% falls in the year 2024.


Diversification Profile

LMIRT is diversified in terms of geographical and property where its top geographical and top property contribute 38.8% and 13.9% respectively. Its top tenant contribution is moderate at 10% where top 10 tenants contribution is low at 23%.


Key Financial Metrics

Property yield is high at 8%, normal for developing countries, high property yield come with high cost of debt. Management fee is not competitive in which unitholders receive S$ 3.69 for every dollar paid. Distribution on capital and distribution margin is low at 2.1% and 15.4% respectively. 6% of the past 4 quarters distribution is from income support.


Related Parties Shareholding

As compared to SREITs median, sponsor and manager holding higher stake while directors of REIT manager not holding any share.


Trend

DPU is on downtrend since its peak in 2Q 2017. NAV per unit and distribution unit are on downtrend too. Distribution margin started to drop from 2Q 2018 because LMIRT terminated all outsourced agreements with the third party service provider due to implementation of Government Regulation Number 34 of 2017 by June 2018. After the termination, all the malls collect service charge and utilities recovery charges from the tenants and pay for all costs for the maintenance and operation of the malls directly. If we look at the period between 3Q to pre-COVID, distribution margin maintains more or less the same, besides at 4Q 2018 where LMIRT has high realized foreign exchange loss.


Relative Valuation

i) Average Dividend Yield  - Apply past 4 quarters DPU of 1.31 cents to average yield of 8.09% will get S$ 0.162. 

ii) Average Price/NAV - Average value is at 0.96, apply the latest NAV of S$0.277 will get S$ 0.265.


Author's Opinion

Favorable Less Favorable
Unsecured Debt Occupancy
Top Geographical Contribution Income Received in IDR
Top Property Contribution Weighted Average Land Lease Expiry
Top 10 Tenants Contribution Cost of Debt
Property Yield Interest Cover Ratio
Concentrated Debt Maturity
Management Fee
Distribution on Capital
Distribution Margin
DPU Downtrend
NAV Downtrend

As LMIRT income and valuation are denoted in IDR, so any big forex movement would affect its DPU and NAV, hedging couldn't provide protection for long term currency depreciation. LMIRT is making a loss in the latest quarter, which is covered by distribution retention from the previous quarter. LMIRT declared no distribution to perpetual security holders for 1Q 2020, which is not accrued. 

LMIRT has completed the divestment of 2 properties on 30 July and 3 August, which both amount to 7.2% of its valuation. As for the Lippo Mall Puri acquisition, there is no update since 1 Apr when LMIRT announced extension of the long stop date to 31 December 2020. With the current situation, unless there is a big drop in acquisition price for Lippo Mall Puri, else it would be tough to acquire it without equity fundraising or issue more perpetual securities at high interest. 


The above analysis information is extracted from SREITs Dashboard, you are welcome to use the information for your own analysis or blog post. You could also refer SREITs Data for an overview of Singapore REITs. If you like my sharing, please join the Facebook group - REIT Investing Community where you could read, share, and discuss REITs related topics. Please also invite your like-minded friends to the group.

*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee the accuracy, completeness, and reliability. It should not be taken as financial advice or statement of fact. I shall not be held liable for errors, omissions as well as loss or damage as a result of the use of the material in this blog. Under no circumstances does the information presented on this blog represent a buy, sell, or hold recommendation on any security, please always do your own due diligence before any decision is made.

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