Lippo Malls Indonesia Retail Trust - CIMB Research 2016-11-13: 3Q16 Enjoying positive rental reversions

Lippo Malls Indonesia Retail Trust - CIMB Research 2016-11-13: 3Q16 Enjoying positive rental reversions LIPPO MALLS INDO RETAIL TRUST D5IU.SI

Lippo Malls Indonesia Retail Trust - 3Q16 Enjoying positive rental reversions

  • 3Q/9M DPU was 28%/81% of our full-year forecast, largely in line with expectations.
  • Healthy rental reversion of 7.3% in 3Q16, with portfolio occupancy unchanged at 94.8%.
  • Expect more income uplift in FY17F when long-term leases are renewed.
  • Acquisition of Lippo Mall Kuta in the works.
  • Downgrade from Add to Hold due to limited upside; Target price reduced to S$0.38.

Lifted by positive rental reversions and other income 

  • LMRT’s 3Q16 revenue rose 6.6% yoy to S$47m, boosted mainly by positive rental reversions and higher car park income. 
  • A slight decrease in expense ratio to 7.9% (vs. 8.6% in 3Q15) boosted NPI to S$43.3m (+7.6% yoy). 
  • Distribution income of S$24.1m, 12.4% higher yoy, translated into DPU of 0.86 Scts. 
  • For 9M16, DPU of 2.54 Scts comprised 81% of our FY16 estimate and we deem this largely within expectations.

Healthy rental reversion of 7.3% 

  • Portfolio occupancy remained 94.8% at end-3Q16. LMRT renewed 13,634 sq m of space during the quarter, at 7.3% positive rental reversion. 
  • The top 10 tenants accounted for 20% of GRI, while major trade sectors (such as department stores, fashion and F&B/food court) made up 57.2% of total GRI at end-3Q16.

More uplift from renewal of long-dated leases in FY17F 

  • LMRT has a remaining 2% of leases to be renewed in FY16F and a further 23% in FY17F. A number of the leases expiring close to end-FY17 include long-term lease contracts with key tenants such as Matahari and Hypermart. We anticipate strong upside from these reversions and the positive impact should be felt in FY18F onwards.

Lower gearing post-perpetual securities; likely purchase of LMK 

  • LMRT issued S$140m of 7% perpetual securities to partly refinance a S$150m bond in Oct 2016. As a result, gearing improved to from 32.7% at end-2Q16 to 27.9% at end- 3Q16, giving the trust significant debt headroom for new acquisitions. 
  • It is in the process of seeking unitholder approval at an EGM on 30 Nov 16 to acquire Lippo Mall Kuta from its Sponsor for S$81.6m. If fully funded by debt, gearing could increase to c.32% posttransaction.

Downgrade from Add to Hold 

  • We lower our FY16-18F DPU estimates by 3.7-4.5% to account for higher distribution to the perpetual security holders, partly offset by lower interest expense. Accordingly, our DDM-based target price is lowered to S$0.38. 
  • LMRT’s share price outperformed the STI in recent months and immediate upside is limited, in our view. 
  • We downgrade our recommendation to Hold. 
  • Key risk to our call is better-than-projected rental reversions.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2016-11-13
CIMB Research SGX Stock Analyst Report HOLD Downgrade ADD 0.38 Down 0.400