STRONG FUNDAMENTALS INTACT

•DPU slightly below expectations

•Fundamentals still strong

•Maintain BUY, but drops FV to S$0.43

NPI boosted by newly acquired retail malls

Lippo Malls Indonesia Retail Trust’s (LMIRT) 1Q12 gross revenue of S$45.6m (+39.0 YoY) and NPI of S$30.9m (+38.0% YoY) were in line with our expectations, meeting 25.1-25.6% of our full-year estimates. The strong performance was primarily driven by a full-quarter contribution of the two retail malls that were acquired in 4Q11. Distributable income, however, was slightly lower than expected at S$15.0m, due to higher tax expenses and one-off charges of ~S1.7m associated with the refinancing and acquisition activities in prior quarter. As a result, DPU for the quarter registered 0.69 S cents, forming 18.6% of our FY12F DPU (20.9% of consensus). This is lower than the DPU of 1.17 S cents seen a year ago due to a 1-for-1 rights issue in 4Q11, but represents a significant QoQ improvement of 30.2%. The DPU will be payable on 24 May.

Positive outlook

As at 31 Mar, LMIRT’s portfolio occupancy had remained steady at 94.5% (94.1% in prior quarter). This is well above Indonesia’s retail industry average occupancy rate of ~87.6%. According to management, its malls have been seeing strong interest by

international and local retailers, while shopper traffic has been rising amid strong domestic consumption. LMIRT also reiterated that Jakarta remains ‘under-shopped’, as evidenced by its low retail density of 0.4 sqm per person relative to 0.7 sqm in Singapore and 2.7 sqm in Kuala Lumpur. Hence, it is confident that its retail malls are well positioned to benefit from the burgeoning Indonesian retail industry.

Maintain BUY; but lowering fair value from S$0.45 to S$0.43

LMIRT’s aggregate leverage was slightly up from 8.7% in 31 Dec to 9.2%, largely due to a 5.0% QoQ decline in investment properties resulting from the effect of forex rate changes. However, its financial position is still strong in our view, with no refinancing needs until Jun 2014. We now revise our FY12-13 forecasts to factor in the 1Q results. Accordingly, our fair value eases slightly from S$0.45 to S$0.43. Maintain BUY on LMIRT, as we are still looking at favourable total expected return of 13.3%.

POISED FOR FURTHER GROWTH

•Consistent set of results

•Demand for retail space to stay strong

•Well-positioned for growth

4Q11 results within expectations

Lippo Malls Indonesia Retail Trust (LMIRT) reported NPI of S$24.6m (+16.8% YoY) and distributable income of S$11.4m (-5.1% YoY) for 4Q11. This is in line with our quarterly forecasts of S$23.7m and S$12.7m respectively. DPU for the quarter (post rights issue) came in at 0.53 S cent, lower than 4Q10 DPU of 1.11 S cents but still consistent with our projection of 0.58 S cent. For FY11, NPI grew by 7.9% to S$92.0m and distributable income fell 0.9% to S$47.4m. DPU, on the other hand, was down 13.0% to 3.85 S cents. However, this translates to a still attractive FY11 yield of 9.9%.

Optimistic outlook from management

Moving forward, LMIRT reiterated that its retail malls are likely to continue to benefit from Indonesia’s robust economic growth and strong domestic consumption. Management also highlighted that there is a demand-supply imbalance for quality retail space, which is likely to keep the demand for its malls strong. We note that its portfolio occupancy rate as at 31 Dec 2011 remained healthy at 94.1% (97.8% in prior quarter), well above Indonesia’s retail industry average of 87.6%. The Dec 2011 Retail Sales Survey by Bank Indonesia also showed that retail sales is expected to remain strong throughout 1H12. Hence, we concur with LMIRT that its financial performance in the coming quarters is likely to remain favorable, especially with full-quarter contributions from recently-acquired Pluit Village and Plaza Medan Fair going forward.

Financial position remains strong

As at 31 Dec 2011, LMIRT’s aggregate leverage was at low 8.7% (10.1% in 3Q), boosted by a positive 5.7% YoY revaluation of assets (excluding acquisition assets) and rights issue. In addition, approximately S$931m (60.4%) of its assets are unencumbered. This gives LMIRT the financial flexibility and capacity to realize its growth plans. Maintain BUY with unchanged fair value of S$0.45 on LMIRT.

OUTLOOK REMAINS HEALTHY

• Demand likely to stay sturdy

• Strong contribution from new additions

• No immediate refinancing needs

Demand for retail malls/spaces to remain strong.

We remain positive on Lippo Malls Indonesia Retail Trust’s (LMIRT) financial performance in 2012. Retail sales in Indonesia have been treading along a positive trend line since 1Q11, based on survey by Bank Indonesia. In Jakarta and Medan where the most of LMIRT’s retail malls/spaces are located, we note that Oct retail sales accelerated by 41.1% and 22.3% YoY respectively, following Sep sales growth of 26.1% and 16.3%. While the Consumer Confidence Index in Nov eased slightlyby 1.6% MoM to 114.3, respondents were still optimistic that retail sales in 1Q12 are likely to remain high. As such, we believe the demand for its retail malls/spaces is likely to remain healthy.

Recent acquisitions to drive growth.

LMIRT had also recently announced the completion of acquisitions of Pluit Village and Plaza Medan Fair. We expect these new additions, which collectively make up around 26.3% of its portfolio NLA, to contribute significantly to its rental revenue in 2012. According to management, the investments are likely to boost its distributable income by 61% from S$47.9m seen in FY10, while its adjusted DPU yield would increase to 8.43% from 8.38%. We view this positively as the acquisitions were expected to be DPU yield accretive and were done at a discount of 4.1-5.7% to their average valuations.

Maintain BUY.

LMIRT is also in a comfortable position for further growth opportunities. We estimate that its aggregate leverage will remain fairly unchanged at around 10% post acquisitions, giving it ample funding capacity for future investments. Moreover, LMIRT has successfully refinanced its bank borrowings due 26 Mar with a drawdown of S$147.5m under its new loan facility arrangement. With the debt due for repayment only in Jun 2014, LMIRT has no immediate refinancing requirements over the next year. We maintain our BUY rating and S$0.45 fair value on LMIRT.

Acquisitions to accelerate growth

Slightly below expectations. Lippo Malls Indonesia Retail Trust’s (LMIRT) 3Q11 DPU of 1.06 cents was slightly below our expectation due to higher-than-expected tax expense. However, gross revenue of S$33.3m (-1.4% YoY) and NPI of S$22.5m (+1.2% YoY) were ahead of our projections, notwithstanding a negative impact from a depreciating IDR against SGD. In IDR terms, we note that gross revenue and NPI would have grown by stronger 3.3% and 6% YoY, supported by a steady flow of shopper traffic and growing urban middleclass catchment population. For 9M11, revenue of S$99.2m and DPU of 3.32 S cents formed 78.9% and 71.6% of our fullyear revenue and distribution figures, respectively.

Fundamentals remained sound. Overall portfolio occupancy as at 30 Sep was healthy at 98%. This remained unchanged from the rate seen a quarter ago, but compared favourably to the 3Q11 industry average of 85.7% (Source – Colliers International). Debt-to-asset ratio was also at a low 10.1% (end Jun: 10.2%), providing the group ample funding capacity for future acquisitions. On 28 Sep, we note that LMIRT had secured a new term loan facility of up to S$200m with an all in margin of 5.2% (lower than cost of debt of 6.5% as at 30 Sep) to refinance its existing S$125m loan which will mature in Mar 2012. With that, the group’s debt maturity will be extended to 2014 with no refinancing requirements over the next three years.

Acquisition to fuel growth. Further to the announcement on the proposed acquisition of Pluit Village and Plaza Medan Fair and rights issue on 30 Sep, management had also received approval from unitholders at the EGM convened on 20 Oct. As a recap, LMIRT proposed a one-for-one renounceable rights issue at an issue price of S$0.31 apiece to raise ~S$337m to partially fund the purchase consideration of S$388m. We view this positively as the acquisitions were expected to be DPU yield accretive and were done at a discount of 4.1-5.7% to their average valuations. According to management, the investments are likely to boost its distributable income by 61% from S$47.9m seen in FY10, while its adjusted DPU yield would increase to 8.43% from 8.38%.

Reiterate BUY. We factor in the contributions from the two new malls and rights issue, as the acquisitions are expected to complete on 9 Dec. Using the Dividend Discount Model, our fair value is now adjusted from S$0.61 to S$0.45. Looking at an attractive potential upside of 26.3%, we maintain our BUY rating on LMIRT.

LMIR Trust’s Q2 DPU rises 4.9%

LIPPO-MAPLETREE Indonesia Retail Trust (LMIR Trust) has announced a distribution per unit (DPU) of 1.09 cents for the second quarter ended June 30, 2011, up 4.9 per cent from 1.04 cents a year ago.

Distributable income for the period totalled $11.86 million, a 5.5 per cent increase over $11.24 million in Q2 2010.

This represents an annualised DPU yield of about 7.1 per cent based on its Aug 4 closing price of 63.5 cents per unit.

Gross revenue in Q2 dropped 17.5 per cent from $40.15 million a year earlier to $33.11 million.

LMIR Trust cited two main reasons: the depreciation of the Indonesian rupiah as seen in foreign exchange rates used for translating revenues denominated in rupiah into Singapore dollars; and the fact that six months of service and charges receipt and utilities cost recovery income were recognised in Q2 2010, versus only three months in Q2 2011. This was because of a delay in transition of the malls’ operations from third-party operators in early 2010.

Net property income rose 4.3 per cent from $21.64 million in Q2 2010, to $22.57 million in Q2 2011.

First-half net property income increased 7 per cent from $41.98 million in H1 2010 to $44.92 million in H1 2011.

Said Vivien G Sitiabudi, chief executive officer of Lippo-Mapletree Indonesia Retail Trust Management: ‘LMIR Trust continues to benefit from the robust Indonesian economic environment which has resulted in rapid growth in income and consumption for the expanding middle class segment.’

Ms Sitiabudi also said that she expects demand for space in LMIR Trust’s malls to remain high.

‘Encouraged by the healthy 6.8 per cent growth forecast for Indonesia in 2011 and the rise in consumer confidence, local and international brands have continued to expand their business in strategic locations across Indonesia,’ she said.

LMIR Trust’s property portfolio comprises seven retail spaces and eight retail malls in Indonesia. The properties have a total net lettable area of 398,069 sq m, and a total valuation of $1.08 billion.

LMIR Trust closed 3.5 cents lower yesterday at 60 cents per unit on a day when Asian bourses took a severe beating following a sharp drop on Wall Street.