LMIR – OCBC

Mixed signals from maiden results

Shortfall in revenue. Lippo-Mapletree Indonesia Retail Trust (LMIR) posted S$29.3m in total revenue over 19 Nov 2007 to 31 Mar 2008, missing its IPO forecasts by 5.11%. Management indicated that the shortfall stemmed from four of LMIR’s retail malls in Jakarta; Bandung; and Greater Jakarta that had recently undergone asset enhancement works. The miss was apparently due to “reduced rentals” meant to attract traffic driving tenants. The REIT said the variance from its forecasts would be “mitigated in the coming months”. LMIR has not given many details on the portfolio’s performance, which makes it hard to judge how much blame was due to lower rental rates (with no immediate remedy) or higher vacancy levels (which has an easier fix).

But DPU exceeds forecasts. Tightly controlled operating expenses drove the S$27.6m in recorded net property income. The strong 94.4% NPI margin versus the 93.5% forecasted at listing helped LMIR to recover some of the shortfall in turnover but it was primarily one-time gains that reversed the ‘shortfall trend’. One time gains included realized gains on forex forward contracts which led distributable income to exceed forecasts by 3.3% at S$23.3m. Unitholders will enjoy DPU of 2.2 S cents for the period. We are estimating full-year DPU to come to 5.8 S cents, implying a strong 10.2% yield.

Sun Plaza to brighten 2Q. LMIR completed its maiden post-IPO acquisition on 31st March for IDR980bn. The Sun Plaza in Medan increased its total portfolio NLA by almost 20%. According to Knight Frank estimates, the property was bought at a 11.5% discount to its IDR 1,107bn value and at a 9.4% FY07 NPI yield. We estimate that the retail mall will contribute more than IDR25bn to 2Q revenue. As Sun Plaza is LMIR’s first geared acquisition, it will also begin to record interest costs on the S$125m debt. Nevertheless, we believe the acquisition is DPU yield accretive and will add a shine to FY08 earnings.

Treading carefully. We will continue to monitor the performance of LMIR’s existing portfolio as more data come in on portfolio performance. LMIR also said that it will “reassess the timing and sequence” of its targeted acquisition portfolio, as mentioned in our report last week. While LMIR’s acquisition pipeline remains impressive, the uncertainty shrouding equity and debt markets will most likely drive LMIR to adopt a less aggressive acquisition schedule than previously indicated. We maintain our BUY rating and fair value estimate of S$0.70.