LMIR – OCBC

 

Another hit from weaker IDR

  • 1Q14 DPU down 23.6% YoY
  • Future distribution likely to stabilize
  • Stronger financial position

 

1Q14 results missed expectations

Lippo Malls Indonesia Retail Trust (LMIR Trust) reported a dismal set of 1Q14 results, with gross revenue falling 14.5% YoY to S$33.7m and NPI down 16.6% YoY to S$31.1m. The soft performance was mainly due to the expiry of rental guarantee income from Pluit Village and a 15.8% depreciation of IDR against SGD. DPU for the quarter

slipped 23.6% to 0.68 S cents, further dragged down by higher finance and other costs. This is below market expectations, given that the quarterly distribution only met 18.7%/21.3% of our/consensus FY14 DPU forecasts. Nevertheless, on a sequential basis, DPU represents a 21.4% improvement, aided by hedging and capital management efforts by LMIR Trust.

Fundamentals still sound

We understand that the currency hedges in place previously were only effective for ~15%-16% of the income. However, over 90% of the income is now covered with the new hedges, which should provide greater stability to LMIR Trust’s distribution going forward. Underlying portfolio performance, we note, has been encouraging thus far, with gross rental income in IDR terms growing 6.3% YoY and portfolio improving 1.8ppt YoY to 95.6% (4Q13: 95.0%). While there was a jump in property operating expenses (+46.2% YoY in IDR terms), we note that this was due to a change in the recognition of parking income (LMIR Trust now operates the mall car parks in-house rather than outsourcing to third-party). In addition, average rental reversion of 9.4% was achieved during the quarter.

Maintain HOLD

Over the quarter, LMIR Trust also repaid its S$147.5m term loan. As a result, gearing ratio improved from 34.3% registered in 4Q13 to 26.7%, with no refinancing needs until Jul 2015. With the stronger financial position, management said it is well positioned for future growth. We note that LMIR Trust is currently exploring at least one investment opportunity, and may potentially conclude a deal this year. However, pending any material development, we lower our fair value slightly from S$0.39 to S$0.37 to account for the weak results. Maintain HOLD.