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.
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.
4Q13 a miss
- Weak IDR drags down results
- Repaid S$147.5m facility
- Maintain HOLD
4Q13 gross rental income contracts 4%
LMIRT’s 4Q13 results were significantly below ours and the street’s expectations. FY13 DPU of 3.25 S cents formed only ~93% of ours and the street’s prior estimate. LMIRT reported 4Q13 gross rental income of S$33.9m, down 4.0% YoY. Net property income (NPI) was S$31.1m, down 5.5% YoY. 4Q13 average IDR/SGD rate depreciated 15.4% YoY, pulling down the results. In IDR-terms, 4Q13 gross rental income and NPI increased by 13.5% YoY and 11.7% YoY respectively. Distributable income fell by 14.6% YoY to S$13.8m and 4Q13 DPU contracted 24.3% YoY to 0.56 S cents (down 36% QoQ). LMIRT’s NAV has fallen from S$0.4528 at end-Sep 2013 to S$0.4115 at end-Dec 2013. For FY13, gross rental income rose by 16.5% YoY to S$153m, chiefly due to the six malls acquired in 4Q12. FY13 DPU is 10.2% higher YoY.
The S$147.5m loan facility with all-in-cost of 6.77% p.a. that was set to mature in Jun 2014 was repaid in Jan. Recap that a S$150m 4.25% fixed rate note was issued on 4 Oct 2013. It is scheduled to mature in Oct 2016. Finance expenses jumped in 4Q13 by 37.5% YoY to S$9.0m due to the note issued last Oct and the S$75m note issued in Nov 2012. 4Q13 other losses was S$1.0m, versus S$0.2m a year ago, mainly due to a realised loss on FX of S$1.4m.
LMIRT’s portfolio had an average occupancy of 95.0% as at end-Dec 2013. This is higher than the industry average of 81% (according to the 3Q13 Colliers report for retail properties in greater Jakarta). Weighted Average Lease to Expiry (by NLA) as at 31 Dec 2013 was 4.94 years. Average rental reversion for 4Q13 was 11.1%.
Adjusting our assumptions, including raising our cost of equity assumption from 10.1% to 10.6%, we reduce our FV from S$0.45 to S$0.39. Maintain HOLD. We estimate a FY14F yield of 9.2%.