Is Lippo Malls Indonesia Retail Trust Still Worth Buying After The New Tax Reform?

Lippo Malls Indonesia Retail Trust (LMIRT) is presently the only SGX-listed REIT that specifically invests in retail malls and spaces across Indonesia. The REIT has received a downgrade in credit rating from Baa3 to Ba1 on 7 March 2018 by Moody’s.

Its impact, however, was felt two months earlier after news of LMIRT’s drop in credit rating was released on 21 December 2017. Ever since LMIRT’s stock price had dropped from S$ 0.41 to S$ 0.38 presently. The management, to its credit, has responded candidly by issuing press releases to state its debt levels in an attempt to restore investors’ confidence.

From an investor’s viewpoint, the questions are: ‘Is this setback a permanent thing to LMIRT? Or, does LMIRT have the ability to emerge stronger after a setback like this?’ Here, I’ll examine in great detail its past achievements, the current financial standings and its growth potential for the immediate future. Thus, I’ll list down 11 things you need to know about LMIRT before you ‘nail its final coffin’ on it.

#1: Stock Symbol

Ticker Symbol: SGX: D5IU
Market Capitalization: S$ 1.07 billion (30 March 2018)

Share Price: S$ 0.38 (30 March 2018)

Industry: Reit

#2: 9-Year Portfolio Statistics

I’ve compiled the operating statistics of LMIRT for a period of 9 years. From which, I’ve discovered, from 2009 to 2017, LMIRT has:


  1. Enlarged its portfolio from 15 to 30 Properties.
  2. Expanded its portfolio valuation from S$ 1.1 billion to S$ 1.9 billion.
  3. Increased its number of tenants from under 2,000 to 3,363.
  4. Maintained its occupancy rate above 90% in the 9-year period.
  5. Capped its top 10 tenant’s contribution to LMIRT’s group revenue at around 30% throughout the 9-year period.

#3: The Financials

I’ve also compiled the financial results of LMIRT over the last 9 years. It has reported continuous growth in revenue and distributable income during the period. Revenue has risen from S$ 85.8 million in 2009 to S$ 197.4 million in 2017, which in turn, has resulted in higher distributable income from S$ 54.0 million in 2009 to S$ 97.0 million in 2017.

#4: Lease Expiry

As at 31 December 2017, LMIRT has reported having weighted average lease expiry (WALE) of 4.13 years. It has a balanced mixture of both long-term lease agreements with anchor tenants and short-term tenancies. Its anchor tenants which include Matahari Department Store and Hypermart has accounted for 22.3% of LMIRT’s group revenue in 2017.

A Key Reason for the Downgrade:

Both entities are related to LMIRT’s sponsor, PT Lippo Karawaci Tbk. Here’s one of the main reasons for LMIRT’s downgrade in credit rating recently. PT Lippo Karawaci Tbk and PT Matahari Putra Prima Tbk, owner and operator of Hypermart have been given a downgrade in their credit rating by Moody’s to B1 Stable respectively.

A Key Reason for LMIRT to Respond:

According to LMIRT’s Announcement dated on 22 December 2017, it stated that LMIRT’s tenants from the Lippo Group of Companies haven’t defaulted on any rental payments to LMIRT since its listing in November 2007. Hence, this indicates that Lippo has been a good paymaster to LMIRT to-date. Thus, LMIRT has expressed its confidence that its tenants, especially the ones with relations to Lippo, would be able to make their rental payments to LMIRT in the near future.

If All is Well:

Based on its lease profile, 63% of its leases would begin to expire only in the year 2020 and beyond. This adds income stability and visibility to LMIRT for the next few years to come.

#5: Debt Profile

As at 31 December 2017, LMIRT has reported a 33.7% in aggregated leverage ratio. Its weighted average debt maturity is 2.13 years. Its average cost of debt is 4.7% per annum.

#6: Growth Prospects

I’ll list down several key highlights which potentially would positively impact LMIRT’s financial results in the future:

Latest Acquisitions

LMIRT has acquired three retail properties for S$ 123.6 million in 2017.  They include Lippo Plaza Kendari, Lippo Plaza Jogja, and Kediri Town Square. The three malls are presently nearly 100% occupied and would contribute its first full financial results starting in the year 2018.

Sponsor’s Pipeline

PT Lippo Karawaci Tbk is the largest listed corporation in Indonesia by total assets and revenue. It is valued at US$ 830 million in market capitalization as at 31 December 2017. It manages 46 retail malls presently and plans to build a total of 40 new retail malls progressively up till 2030. LMIRT has been given the Rights of First Refusal (ROFR) to acquire these properties, hence, having a healthy pipeline for future acquisitions.

#7: Key Risks

LMIRT is exposed to foreign exchange risk as its retail properties are located in Indonesia where the functional currency is the Indonesian Rupiah (IDR), which had weakened against the Singapore Dollar over the last 10 years. The REIT is mitigating the impact on this risk by using currency option contracts to preserve 85% of the value of its anticipated quarterly cash flows.

#8: Valuation

As I write, LMIRT is trading at S$ 0.38 a unit.

As at 31 December 2017, LMIRT has reported having S$ 0.322 in net asset value a unit. Thus, its current P/NAV works out to be 1.18.

LMIRT adopts a distribution policy to declare and pay out at least 90% of its distributable income on a quarterly basis. LMIRT has paid 3.44 cents in DPU for 2017. If LMIRT is able to maintain its DPU at 3.44 cents per year, thus, its expected gross dividend yield is 9.05%.

#9: New Tax Regulations in Indonesia (April 15, 2018)

On 11 April 2018, LMIRT has announced that the government of Indonesia has passed certain amendments to the regulations regarding the income tax payments on income received from land and/or building leases at a tax rate of 10% of the gross amount paid or acknowledged as debt by tenants. This is inclusive of service charges and utility recovery charges.

Prior to these changes, property owners are not liable to pay income taxes on such charges which are paid by tenants to third-party operators appointed by property owners. Presently, tenants are now required to withhold income tax on service charges and utility recovery charges. The new ruling has an impact on LMIRT. Based on their calculation, if this ruling commenced on 1 January 2017, LMIRT would have paid 3.19 cents instead of 3.44 cents in 2017.

As at 15 April 2018, LMIRT is trading at S$ 0.34 a unit. Therefore, if LMIRT is able to maintain its DPU at 3.19 cents per year, its expected gross dividend yield is 9.38%.

#10: What’s My Verdict?

Since 2009, LMIRT has grown its assets and has delivered growth in revenue and distributable income to its shareholders. Presently, its debt level remains below the 45% threshold set by the Monetary Authority of Singapore (MAS) as it reports a gearing ratio of 33.7%. This also provides a debt headroom for financing options to expand its portfolio in the future, which most likely, will come from its pipeline of properties developed by PT Lippo Karawaci Tbk.

On the flip side, LMIRT is exposed to currency risk and weaker confidences from investors as Moody’s had just handed a bad credit report to LMIRT. So, it is not all rosy for LMIRT. I believe, investors should consider both its risks and rewards beforehand before investing into LMIRT.

So, is this the final nail in the coffin for LMIRT?

Or, is a gross dividend yield of 9.38% a year from LMIRT worth considering?

You decide.

#11: Investors Relation

For further enquiries or to request for additional investment information on LMIRT’s Investors Relation matters, you may contact:



#12: Major Shareholders

As at 8 March 2018, the substantial shareholders of LMIRT are as followed:

– Bridgewater International Ltd: 24.8%

– LMIRT Management Ltd: 5.2%

– Wealthy Fountain Holdings Inc: 5.7%


PT Lippo Karawaci Tbk is a substantial shareholder of LMIRT with stakes in Bridgewater International Ltd and LMIRT Management Ltd. Thus, PT Lippo Karawaci Tbk has indirect shareholdings of 30.0% in LMIRT presently. Thus, James Riady is the ultimate largest shareholder of LMIRT with his stakes in PT Lippo Karawaci Tbk.

Tong Jinquan is the second largest shareholder of LMIRT with his interest at Wealth Fountain Holdings Inc.

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