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

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.

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.

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