This Article has been edited on 8th Sept 2017.


Lippo Mall Indonesia Retail Trust (LMIR) (SGX:D5IU) is the first and only Indonesia retail REIT listed on Singapore Exchange. It offers investors exposure to the retail market in Indonesia through its ownership in 21 retail malls and 7 retail spaces. LMIR’s assets are everyday malls located in major urban centres in Indonesia such as Greater Jakarta, Medan, Bandung and Bali that cater to middle-class domestic consumers.

Here is some essential information you need to know about LMIR.

1- Stock Information
1

Ticker Symbol: D5IU

Market Capitalisation: S$ 1.24 billion

Sector: Real Estate Investment Trust

2- Lippo Mall Indonesia Retail Trust’s Assets Portfolio

Lippo Mall Indonesia Retail Trust owns 21 retail malls and 7 retails spaces. The diagram below provides a snapshot of how its assets are spread across the country.

Source: LMIR Q2 FY17 Results Presentation

Majority of the malls are located in Java Island, the most developed and densely populated area of Indonesia. Jakarta alone, the capital city, takes up about half of the total assets in Lippo Mall Indonesia Retail Trust.

As for tenant composition, the trade sector breakdown is as follow:

Source: LMIR Q2 FY17 Results Presentation

Department store and supermarket/hypermarket are major tenant groups that occupy 19.6% and 19.2% of the total Net Lettable Area. As for rental revenue, F&B/Food Court is the largest contributor at 19.9% followed by Fashion at 17.3%.

3 – The Business

With a broad overview of Lippo Mall Indonesia Retail Trust’s properties, let’s take a look at their key operating statistics.

Occupancy Rate

Based on latest Q3 results, LMIR’s portfolio occupancy stands at 94.3%. Three of its most valuable malls: Lippo Mall Kemang in Jakarta, Sun Plaza in Medan and Plaza Medan Fair, have occupancy rates of 95%, 99.1% and 99.8%.

Lease Expiry Profile

Lippo Mall Indonesia Retail Trust’s Weighted Average Lease Expiry as at 30 June 2017 is 4.32 years.

Based on the latest quarterly report, the lease expiry is well spread-out from 2017 to the year 2021 and beyond.

Source: LMIR Q2 FY17 Results Presentation

Debt Maturity Profile

70% of LMIR’s debt is on fixed rates, mitigating the impact future interest fluctuation.

The weighted average maturity of its debt is 2.09 years.

In 2017, 19.2% of the debt would expire. Investors need to note that a major portion of LMIR’s bonds and terms loans will expire in FY2018, and it is important to monitor LMIR’s ability to refinance this debt at a favourable rate next year in order to not weaken its balance sheet.

Source: LMIR Q2 FY17 Results Presentation

4 – Key Strength and Opportunities

Positive Macro Environment

A major draw of LMIR’s investment merit is its exposure to the fast growing Indonesia’s economy and the rising affluence of its population. Indonesia has a population of 250 million people serving as ready market for its economic output. This has underpinned the country’s decent economic growth in recent years and allowing it to be relatively sheltered from the global economic upheaval.

In 2016, Indonesia’s economy grew by 5%. World Bank projected the economy to grow by 5.4% in 2017. Domestic consumption, which already made up 55% of the country’s GDP, is expected to grow further. This bodes well for LMIR as a rising disposable income with higher consumption power would help create a more vibrant retail sector.

Another factor that favours LMIR’s growth is the rising urbanisation rate. World Bank estimates that more than 68% of Indonesia’s population will live in cities within the next 10 years. Major urban centres such as Jakarta and Medan which would have a larger population and growing middle class in future, would offer more growth opportunities for LMIR.

Strength of its Sponsor – Lippo Karawachi

Lippo Karawachi is Indonesia’s largest property company by revenue and total assets. A check at the company’s website reveals that its operations cover residential and urban development, hospitals, shopping malls, hotels and asset management. Lippo Malls owns 46 shopping malls across Indonesia, with plans to develop more to bring its total number of malls to over 80 by the year 2030. With the right-of-first-refusal to acquire assets from its sponsor, LMIR has abundant options when it comes to acquiring new assets to enlarge its portfolio.

Positive Rental Revision

LMIR has been actively acquiring retail properties since IPO and managed to consistently increase its distributable income. In fact, its distributable income has been growing in past 3 years and looks set to grow again this year.

Source: LMIR Q2 FY17 Results Presentation

It is also commendable that LMIR had been consistently enjoying positive rental revision since 2011, averaging around 9%. This indicates management’s capability in enhancing the appeal of its shopping malls.

5 – Risks

Threats of Online Shopping

While a growing middle-class population with increasing spending power is a boon to LMIR, they are also susceptible to threats posed by online shopping. There is a burgeoning online shopping scene in Indonesia competing against physical retail stores. The big boys such as Alibaba and Amazon will soon start operation and compete with home-grown e-retailers such as Tokopedia and Shopee. LMIR must tap on its management deep expertise in mall management to present innovative shopping experience to visitors to continue attracting crowds, and implement measures to cushion the impact of online shopping.

Excessive Expansion and Rights Issue

Rapid acquisition of properties and ensuring capital raising via rights issue is probably something that Reit investors dislike. A rights issue to acquire productive assets that bring about increasing income distribution is a good thing. Excessive expansion to enlarge asset base for the benefit of Manager is frowned upon. With a pipeline of assets available from its sponsor, investors need to examine LMIR’s future asset acquisition and rights issue closely to ensure it is truly yield-accretive and beneficial to shareholders.

End Of Income Support For Kemang Mall

Lippo Mall Kemang has a rental income support of around S$21 million per year at the moment, which is about 22% of FY16 total distributable income of S$96 million. This income support is supposed to be terminated by the end of Q3 2017.
Given such a backdrop, we need to weigh carefully whether the investment merit of an increasing dividend through acquisition and the favourable macro factors versus the potential drop in distribution after income support expires. One also need to take into account the asset’s rental growth as part of the Kemang Village Integrated Development comprising of a hotel and a school campus.

6 – Valuation and Major Shareholding

LMIR is trading at a Price-to-Book ratio of 1.21 and a dividend yield of 7.7% based on FY16 dividend of 3.41c.

PT Lippo Karawachi is the largest shareholder of LMIR with a 29.4% ownership of its total share.

7 – Investor Relations

You can email the investor relations manager to Lippo Mall Indonesia Retail Trust at ir@lmir-trust.com

What do you think about Lippo Mall Indonesia Trust? Will you invest in them? Share your thoughts below.

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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in CS Chong’s personal capacity. It does not in any way represent those of his employer and other related entities. CS Chong does not own any companies mentioned above.

2 COMMENTS

    • Hi, yes, as you see from the diagram above, about 31% of its lease would expire by 2018. It really depends on whether it can increase its rental rate after its lease ends. So lease expiry can both be a good or bad thing, depending on market conditions.

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