Lippo Malls Indo Retail Trust (LMIRT) - OCBC Investment 2017-06-28: Still Room To Go

Lippo Malls Indo Retail Trust (LMIRT) - OCBC Investment 2017-06-28: Still Room To Go LIPPO MALLS INDO RETAIL TRUST D5IU.SI

Lippo Malls Indo Retail Trust (LMIRT) - Still Room To Go

  • Increase terminal growth rate to 2.0%.
  • FV increases to S$0.475.
  • Maintain BUY.

Completion of acquisition 

  • Lippo Malls Indonesia Retail Trust (LMIRT) completed its proposed acquisition of Lippo Plaza Kendari on 21 Jun 2017, with the purchase consideration financed through the issuance of perpetual securities under its S$1b Euro Medium Term Securities programme. 
  • Given the mall’s FY16 NPI of S$3.0m, the acquisition cap rate is ~9.0%. 
  • We are comforted by the five-year Master Leases (the income of which represents 46% of the mall’s total gross revenue in FY16) as well as the vendor’s commitment to provide an asset enhancement initiative for the mall.  On a pro forma basis, the mall would increase LMIRT’s FY16 NPI by 1.7%. 
  • Following the completion of the Kendari acquisition, LMIRT’s portfolio now comprises of 21 retail malls and seven major retail spaces located within other malls in Indonesia.

S$120m issue of perpetual securities 

  • Recall that earlier this month, LMIRT issued S$120m worth of fixed rate perpetual securities with a fixed rate of 6.60% per annum. Apart from the Kendari acquisition, we believe the perpetual securities will also be used to temporarily refinance the S$50m 5.875% bond due in 6 Jul 2017 and the S$75m 4.48% bond due 28 Nov 2017.

Despite impressive unit price appreciation, still room to go 

  • After re-examining our assumptions, we increase our terminal growth rate from 1.1% to 2.0%. We find this figure conservative given the long-term demand potential for Indonesian retail with its growing middle class; this stands relative to the ~1.5% terminal growth rate we typically apply to many of our SG-based retail REITs
  • After taking into account the acquisition as well as issue of perpetual securities, our fair value increases from S$0.435 to S$0.475. 
  • Since we upgraded LMIRT from a Hold to a Buy on 7 Jun 2016, the REIT has delivered total returns of 45.7%. 

Is there still upside for LMIRT at current prices? 

  • We note that LMIRT is currently trading at 7.8% FY17F yield, which remains comfortably above the ~6.6% forward yield average for the S-REITs sector and the ~6.3% average for the retail REITs sub-sector
  • We maintain BUY on LMIRT with a fair value of S$0.475.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2017-06-28
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 0.475 Up 0.435