Lippo Malls Indo Retail Trust (LMIRT) - OCBC Investment 2017-02-17: One of the only REITs with double-digit DPU growth

Lippo Malls Indo Retail Trust (LMIRT) - OCBC Investment 2017-02-17: One of the only REITs with double-digit DPU growth LIPPO MALLS INDO RETAIL TRUST D5IU.SI

Lippo Malls Indo Retail Trust (LMIRT) - One of the only REITs with double-digit DPU growth

  • LMIRT FY16 DPU up 10.0% YoY.
  • FY17F yield of 8.9%.
  • Fair value increases to S$0.43.

FY16 results beat DPU forecasts on higher than expected hedging gains 

  • Lippo Malls Indonesia Retail Trust's (LMIRT) FY16 DPU beat expectations. 
  • FY16 gross rental income grew 7.2% to S$152.9m, lifted by the full year contribution from Lippo Plaza Batu and Palembang Icon acquired in July 2015, as well as positive rental reversions from the Trust’s existing assets. 
  • A stronger rupiah exchange rate also helped – in IDR terms, FY16 gross rent increased by 6.3% YoY. 
  • FY16 carpark income and other income also increased 12.3% to S$26.4m and 26.6% to S$8.7m respectively. As such, FY16 total revenue increased 8.7% to S$188.1m or 100.0% of our forecast. 
  • FY16 NPI margins remained stable at around 91%. FY16 DPU increased 10.0% YoY to 3.41 S cents, beating expectations at 104.9% of our full-year forecast, due to a larger than expected realized gain on hedging contracts. 
  • The operating performance of the malls remains healthy, with occupancy at 94.3%.

23% of leases by NLA expiring in FY17 

  • Rental reversions came up to 6.7% in 4Q16, and we expect stronger reversions in FY17 given that the leases expiring (23% by NLA) include major anchor tenants such as Matahari Department Store which had signed long-term leases during the IPO year. 
  • As we assume that the expiring leases in question were signed in late 2007, we believe that the bulk of the positive flow-through from the strong rental reversions will only be seen in FY18. 
  • The weighted average lease expiry (by NLA) of the portfolio stands at 4.51 years.

FV increases to S$0.43 

  • After incorporating exchange rate projections, raising our risk-free rate from 2.4% to 2.7%, and including expected contributions from the recently acquired Lippo Mall Kuta, our DDM-derived fair value increases from S$0.40 to S$0.43. 
  • We note that 70% of LMIRT’s debt is on a fixed rate basis, which softens the impact of interest rate fluctuations. The weighted average maturity of debt stands at 2.59 years. 
  • As of yesterday’s closing price of S$0.385, LMIRT is currently trading at an attractive FY17F yield of 8.9%. 
  • We maintain our BUY rating on LMIRT.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2017-02-17
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 0.43 Up 0.400