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.

A pure Indonesia retail play

Singapore-listed Indonesia-focused REIT. Lippo-Mapletree Indonesia Retail Trust (LMIR) is the first Singapore-listed REIT to provide exposure to Indonesia’s burgeoning retail sector. The trust’s investment focus is on income-generating retail malls and retail strata spaces that are strategically located within well-established population catchment areas.

Strong investment case for Indonesia. Indonesia, which enjoys inherent advantages such a wealth of natural resources and a young population, is currently enjoying economic growth and stability under a new political regime. This means growing prosperity among the population and a better quality of life. The emergence of a sizeable urban middle class and a lifestyle shift towards consumerism has made consumption – and the retail sector – the key beneficiary of the Indonesia growth story.

Plenty of growth opportunities, but pace may slow. We believe that LMIR has ample opportunities for inorganic growth thanks to a highly fragmented retail property sector. LMIR came to the market with a clear and ambitious acquisition pipeline from both third-party sellers and through a ROFR granted by its sponsor PT Lippo Karawaci Tbk. It made its maiden post-IPO acquisition worth S$147.4m last month, increasing its portfolio NLA by almost 20%. However, with the present uncertain environment, acquisitions may be made at a slower pace than previously planned.

Key risks. Exchange rate volatility is potentially a concern as both DPU income and interest expenses are SGD-denominated. However, LMIR has entered into forex hedges that should minimize IDR-SGD volatility and protect investor DPU. A steep depreciation in the Rupiah could still threaten NAV as asset values would fall in SGD terms. As LMIR is capitalizing on the low cost of SGD-denominated debt, this balance sheet mismatch could put further pressure on NAV. General country risks, such as political instability and high inflation, also exist.

Initiate coverage with BUY and S$0.70 fair value. LMIR is currently trading at a 30% discount to its S$0.80 IPO price. Our RNAV value of LMIR is S$0.87. In line with the S-REIT universe which is trading at deep discounts to NAVs, our fair value estimate of S$0.70 prices in a 20% discount to our RNAV value. Nevertheless, this offers a 24% upside from current levels. We are projecting FY08 DPU of 5.8 S cents and FY09 DPU of 6.0 S cents. The strong investment case for Indonesia and high distribution yields of more than 10% compel us to initiate coverage on the trust with a BUY rating.

LMIR Trust makes maiden buy

LIPPO-Mapletree Indonesia Retail Trust (LMIR Trust) yesterday announced its maiden acquisition since its listing in November last year. The trust is buying Sun Plaza, a mall in Medan, North Sumatra, for $147.4 million.

The purchase will increase LMIR Trust’s asset portfolio by 15 per cent to $1.15 billion, from $1.0 billion at present.

It will also increase total net lettable area (NLA) in the trust’s portfolio by about 20 per cent to 376,035 square metres.

The acquisition will be funded 20 per cent with internal cash resources and 80 per cent with debt, drawing from a $125 million term loan facility granted by Deutsche Bank at an effective all-in cost of 6.89 per cent. The purchase takes LMIR Trust’s gearing from zero to 10.2 per cent.

The property is the largest and only upmarket retail mall in Medan, Indonesia’s third most populous city, the trust said. The mall has a land area of about 29,419 sq m and gross floor area and net lettable area of 87,188 sq m and 62,583 sq m respectively. It has a committed occupancy of 97.0 per cent for the month ending April 2008.

LMIR Trust said that there are further opportunities to improve the tenant mix at the mall to increase gross revenue and net property income.

It has identified and held preliminary discussions with many leading Indonesian and international retailers which are currently not represented at the new mall but are tenants of other properties in the trust’s portfolio, the trust said.

After the acquisition, the trust’s manager plans to explore various options to increase rentable area – such as increasing the net lettable area and reconfiguring the layout.

LMIR Trust listed on the Singapore Exchange in November 2007 with a portfolio of seven Indonesian malls and seven retail spaces in other malls. It sold some 645.5 million units at 80 cents each. The trust said then that it aims to triple its portfolio size to $3 billion by end-2009.

LMIR Trust’s shares were last traded at 57 cents.

Stabilising action by UBS,

• 6-Dec-07 : Cessation of Stabilising Action – To date purchased 96,820,000 units ; Over-allotment option will not be exercised
• 6-Dec-07 : 1,803,000 Units @ $0.73 to $0.735 per Unit
• 5-Dec-07 : 1,5000,000 Units @ $0.73 per Unit
• 4-Dec-07 : 44,000 Units @ $0.725 to $0.73 per Unit
• 3-Dec-07 : 4,704,000 Units @ $0.725 to $0.735 per Unit
• 30-Nov-07 : 500,000 Units @ $0.735 per Unit
• 29-Nov-07 : 1,234,000 Units @ S$0.730 to S$0.735 per Unit
• 28-Nov-07 : 500,000 Units @ S$0.71 per Unit
• 27-Nov-07 : 1,002,000 Units @ S$0.6825 per Unit
• 26-Nov-07 : 936,000 Units @ S$0.675 to S$0.68 per Unit
• 21-Nov-07 : 819,000 Units @ S$0.66 to S$0.665 per Unit
• 20-Nov-07 : 3,500,000 Units @ S$0.635 to S$0.665 per Unit
• 19 Nov 2007 : 80,278,000 Units @ S$0.675 to S$0.775 per Unit

Note : Total 96,820,000 Units available for Stabilising Action

Lippo-Mapletree trust falls 3.1% in market debut

(SINGAPORE) Shares of property trust Lippo- Mapletree Indonesia Retail Trust started trade yesterday at 77.5 cents in their Singapore stock market debut, down 3.1 per cent against the issue price of 80 cents a unit.

The units closed yesterday at 68 cents, down 12 cents or 15 per cent from the initial public offer (IPO) price.

Indonesia’s Lippo Group and Singapore’s Mapletree Investments sold 645.47 million shares at 80 cents, raising $516 million in their IPO for a joint property trust.

The Lippo-Mapletree Indonesia Retail Trust is based on around $1 billion worth of properties that comprise seven Indonesian shopping malls and seven retail spaces found in other malls, the prospectus said.

The listing of the Indonesian trust comes after Saizen Real Estate Investment Trust (Reit), which is based on residential buildings in Japan, tumbled 14 per cent in its Singapore market debut on more than a week ago.

Saizen’s sharp fall prompted Japan’s Asia Pacific Land to delay a US$350 million IPO in Singapore.

Mapletree, which is owned by Singapore investment company Temasek Holdings , has a 40 per cent stake in the joint venture that will manage the Indonesian trust.

The Lippo conglomerate, controlled by Indonesia’s Riady family, owns the remaining 60 per cent. — Reuters