Lippo Malls Indo Retail Trust - OCBC Investment 2016-11-14: Robust Rental Reversions Expected Next Year

Lippo Malls Indo Retail Trust - OCBC Investment 2016-11-14: Robust Rental Reversions Expected Next Year LIPPO MALLS INDO RETAIL TRUST D5IU.SI

Lippo Malls Indo Retail Trust - Robust Rental Reversions Expected Next Year

  • DPU up 11.7% YoY.
  • 23% of leases expiring in FY17.
  • Maintain BUY.

Results above expectations 

  • Lippo Malls Indonesia Retail Trust (LMIRT) continued to report strong results, with 3Q16 gross revenue up 6.6% YoY to S$47.0m, helped by positive rental reversions of 7.3% as well as greater carpark contributions. NPI increased 7.6% YoY to S$43.3m. 
  • In IDR terms, revenue and NPI grew by a more modest 1.5% and 5.5% YoY. 
  • YTD revenue and DPU made up 78.3% and 79.3% of our initial full-year forecast. The amount distributable to unitholders jumped 12.4% YoY to S$24.2m. 
  • DPU improved 11.7% YoY to 0.86 S cents. 
  • The REIT manager highlighted LMIRT's average DPU growth of 11.8% over the past five quarters. 
  • Do note that an EGM will convene on 30 Nov to seek the approval of unit-holders for the proposed acquisition of Lippo Mall Kuta.

High rental reversions expected in FY17 

  • We are positive on the outlook for FY17 given the prospect of robust rental reversions; 23% of LMIRT’s leases by NLA are expiring in FY17, and we expect that a bulk of this includes major anchor tenants with long-term leases such as Matahari and Hypermart. 
  • The WALE by NLA currently stands at 4.63 years, with 42% of the leases expiring in 2020 and beyond. In terms of leverage, following its issuance of S$140m perpetual securities, LMIRT’s gearing ratio has dropped from 32.7% on 30 Jun 2016 to 27.9% as of 30 Sept 2016. 
  • We nonetheless note the added burden of 7% distribution payments for the perpetual securities till the first reset date in 2021.

FV stays at S$0.40 

  • After tweaking our rental reversion and currency expectations for FY16 and FY17, as well as incorporating the issuance of S$140m perpetual securities, our DDM-derived fair value remains at S$0.40. 
  • In the long run, we are positive on the growth of Indonesian retail rents given the country’s large population base and expanding middle class. 
  • We are nonetheless mindful of rupiah depreciation in the medium term, as LMIRT rolls forward its currency hedges. 
  • As of last week’s closing price of S$0.39, LMIRT is currently trading at a blended FY16/FY17 yield of 8.1%. We maintain our BUY rating.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2016-11-14
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 0.400 Same 0.400