Lippo Malls Indonesia Retail Trust - Higher earnings from organic and inorganic drivers
- FY16 earnings slightly ahead, boosted by new acquisitions and positive rental reversions.
- FY16 rental reversions healthy, up 6.3-7.5% over the previous period.
- We expect more rental uplift when recontracting the 23% of lease renewals due in FY17.
- Gearing of 31.5% provides good debt headroom for more acquisitions.
- Maintain Hold with a slightly higher TP of S$0.39.
4QFY16 results highlights
- LMRT reported 4Q/FY16 revenue S$48.7m/S$188.1m, up 9.1%/8.7% yoy.
- 4Q/FY16 distribution income of S$24.3m/S$95.5m was 7.2%/11.6% better than a year ago and translates to a DPU of 0.87/3.41 Scts.
- FY16 DPU was slightly ahead of our projections, making up 107% of our full-year forecast.
- The improved performance was due to income from new acquisitions such as LPB and PICON as well as positive rental reversions.
Maintaining high portfolio occupancy with positive rental uplift
- Portfolio occupancy was high at 94.3% as at 4Q16 while weighted average lease to expiry (WALE) remained relatively long at 4.51 years.
- In FY16, LMRT renewed/leased 55,855 sqm of space (6.6% of total portfolio net lettable area) at rents 6.3-7.5% higher than those of the preceding period. Its top 10 tenants accounted for 22% of gross rental income.
Renewal of long-term leases could boost earnings from FY18F
- There is a further 23%/12% of space expiring in FY17/FY18.
- Given that some of the FY17 lease expiries are from long-term and anchor tenants such as Matahari and Hypermart, we think the trust should be able to generate a healthy uplift when the leases are recontracted. The full impact is likely to be felt from FY18 onwards, in our view.
- In addition, FY17F earnings are likely to be lifted by a full quarter of contributions from Lippo Mall Kuta, bought in Dec 16.
Low gearing provides headroom for any new acquisitions
- LMRT’s gearing stood at 31.5% at end 4Q16, with a small S$125m of bonds due to be refinanced in 2H17. About 70% of its debts are on fixed rates, mitigating the impact of interest rate fluctuations. The trust continue to have significant debt headroom for new acquisitions.
- We tweak our FY17-18 DPU estimates to factor in the latest results and introduce our FY19 estimates. We roll forward our DDM assumptions. Hence, our target price is lifted marginally to S$0.39.
- We maintain our Hold call for now.
- Potential key catalysts for share price performance are accretive acquisitions and better-than-expected rental reversions.
- Key downside risks are slowdown in retail sales and consumption in Indonesia.