Lippo Malls Indonesia Retail Trust - CIMB Research 2016-08-07: Business as usual

LIPPO MALLS INDO RETAIL TRUST D5IU.SI

Lippo Malls Indonesia Retail Trust - Business as usual

2Q and 1H results slightly ahead, accounting for 27% of our estimate and 54% of our FY16 forecast.
Positive rental renewals, PICON and LPB underpinned growth.
Key tenant renewal to drive organic upside.
Proposed two new purchases still on the cards, gearing of 35.7% provides debt headroom.

LMRT’s 2Q16 revenue increased 11% yoy to S$46.8m (US$34.7m), boosted by contributions from new purchases such as PICON and LPB as well as positive rental reversions.
Expense ratio remained relatively stable, thus NPI expanded by a similar 10.4% yoy to S$43.1m.
Distribution income rose by a higher 19.8%, thanks to lower interest expense on refinancing of part of its loans. This translates to a DPU of 0.85 Scts.

The trust enjoyed positive rental reversions of 6.3% for 16,575 sq m of space expiring in 2Q16. Portfolio occupancy remained at a high 94.8%. New top 10 tenants within the portfolio that emerged in 2Q include H&M and Debenhams.
There was also new income from Palembang ICON (PICON) and Lippo Plaza Batu (LPB), which was acquired in Jul 15. We estimate these properties were purchased at a blended NPI yield of 8.3%.

LMRT has a remaining 5% of its leases due to be renewed in 2H16 and a further 24% in FY17. A number of FY17 leases due to be re-contracted included long term leases from key tenants such as Matahari and Hypermart, towards end-2017.
We anticipate robust rental rate revisions from such leases and this should be felt from FY18 onwards.

Meawhile, LMRT has proposed to acquire Lippo Mall Kuta (LMK) for S$81.6m as well as jointly purchase an integrated mall/hospital property in Yogjakarta for a total of S$91.8m (US$68m).
LMRT’s share of the latter amounts to S$51m and will give the trust separate economic rights to all assets and revenue of the retail mall. LMRT’s gearing now stands at 35.7% and we reckon this ratio should stay below 40%, based on a fully debt funded purchase of LMK. This should add accretively to bottomline when completed.

We raise our FY16-18 DPU estimates by 6.5-9.8% to factor in the current results performance and the impact of the key tenants long lease renewals in the medium term as well as tweak our cost of equity to 11.2%. Hence, our DDM-based target price is raised to S$0.40.
We maintain our Add call with attractive FY16 DPU yield of 9%. LMRT has hedged the bulk of its distribution income to Feb 2017.
Key risk to our call includes a medium term depreciation of the ru

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2016-08-07

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