LMIR – OCBC

1Q11 results mostly in line; Riding on Indonesia’s economic growth

1Q DPU of 1.17 S-cents. LMIR Trust (LMIR) reported 1Q11 gross revenue of S$32.8m, up 40.8% YoY and 1.9% QoQ, which was also in line with our expectation and street estimates. The yearly increase was largely due to the (1) additional income derived from the service charges receipt and utilities cost recovery from tenants at seven of its malls and (2) positive rental reversion of renewed leases. NPI rose 9.9% YoY and 6.1% QoQ to S$22.4m. Distributable income, however, dropped 1.6% YoY but rose 5.3% QoQ to S$12.7m. The yearly decline was partially the result of an increase in realized loss on foreign exchange forward contracts of S$2.1m as the cross currency swap remained “out of the money”, compared to $1.7m in 1Q 2010. 1Q11 DPU is 1.17 S-cents (also in line with our forecast of 1.14 S-cents) compared to 1.11 S-cents in 4Q10 and 1.20 S-cents in 1Q10. On an annualized basis, this represents a yield of 8.5% based on yesterday’s close of S$0.555. As at 31 Mar 2011, LMIR’s gearing remained flat QoQ at 10%, with total borrowings stable at S$125m.

Portfolio Performance. Overall portfolio occupancy dipped from 98.3% the previous quarter to 98%. We note that the occupancy for Plaza Semanggi declined 3.4pp to 93.7%, possibly due to non-renewal of tenants. Nonetheless, this compares well against Jakarta’s average occupancy rate of 86.3%. LMIR also benefited from positive rental reversion with renewed leases contracted at 9% higher on average than the ones that have expired during the quarter. LMIR continues to have a well-diversified portfolio, with no particular trade sector accounting for more than 25% of total net leasable area (NLA), and no single property accounting for more than 16% of total net property income (NPI). We continue to like LMIR’s market positioning. The main shopper traffic at its retail malls and spaces comprises urban middle-income to upper middleincome consumers, whilst its malls are deemed as “everyday malls” for daily essentials, food outlets and family entertainment.

Supported by Indonesia’s Growth Story. Management guided that Indonesia’s retail sales are expected to rise by 20% to S$13.8b in 2011, due to the growing number of retail outlets and strong domestic demand. With Indonesia’s continued economic growth, rising middle class income and greater spending power, we believe LMIR is poised to benefit from the growth of the mall culture in Indonesia. Reiterate BUY with an unchanged fair value of S$0.59 (total returns of 14.7%). Further increase in fair value, in our view, would stem from the manager announcing further acquisitions or development projects.