LMIR – OCBC

Back on track in second quarter

Outperforms IPO guidance this time. Lippo-Mapletree Indonesia Retail Trust (LMIR) had a relatively smoother ride over 2Q08 – it posted S$24.5m in gross revenue, 15% higher than the trust had guided during its November 2007 IPO. This was a welcome change from the previous period, when it had missed its own guidance by 5.11%. The trust will pay out 1.5 S cents per unit for the quarter, 3% above guidance. On a normalized QoQ basis, DPU is almost unchanged as the trust had been able to cushion the last period’s revenue shortfall with some one-time gains.

Sun Plaza booster, rest on track. Earnings were primarily boosted by Sun Plaza, which was acquired on 31 March. The retail mall in Medan, LMIR’s first (partially) debt-funded buy, increased the trust’s total portfolio NLA by almost 20%. Management disclosed that the portfolio ex-Sun Plaza performed as per LMIR’s guidance – contributing about 1.46 S cents of the 1.50 S cents DPU. Management also told us that rent reversions have been in line with LMIR’s assumptions at its IPO – the trust is seeing reversionary growth of about 10% per annum. Occupancy rates are also increasing as expected except for dark horse Bandung Indah where occupancy shot up to 97.4% as of 30 June from 89.3% on 31 March.

Asset enhancement plans. Macro-level uncertainties have led LMIR to re-assess its acquisition plans and we continue to expect a more conservative pace than what was indicated at its IPO. In any case, our valuation has always been based on the existing portfolio alone. In the meantime, the trust plans to roll out asset enhancement initiatives worth about S$3m at the trust’s Istana Plaza and Mal Lippo Cikarang malls that will increase the malls’ NLA by 2.4% and 17.3%, respectively.

Revise up DPU estimate, maintain BUY. We have tweaked our occupancy and rent assumptions, increasing our DPU estimates by about 4%1. Meanwhile, LMIR has appreciated over 9% since our last report in June. Our view on the trust is unchanged – the oft-discussed macroeconomic risks are balanced by the opportunities inherent in Indonesia’s retail sector. And while market conditions have currently reined in the trust’s acquisition plans, its low 10.2% gearing and strong acquisition pipeline gives it headroom for growth as credit conditions improve. LMIR’s 10.1% FY08F distribution yield (annualized) is an attractive entry point for investors, in our view – maintain BUY and S$0.70 fair value estimate.