Lippo Malls Indo Retail Trust (LMIRT) - OCBC Investment 2017-11-06: One Of The Highest Yielding S-REITs

Lippo Malls Indo Retail Trust (LMIRT) - OCBC Investment 2017-11-06: One Of The Highest Yielding S-REITs LIPPO MALLS INDO RETAIL TRUST D5IU.SI

Lippo Malls Indo Retail Trust (LMIRT) - One Of The Highest Yielding S-REITs

  • FY18F yield of 7.8%.
  • FV increases to S$0.460.
  • Attractive unit price.

3Q17 results within expectations 

  • Lippo Malls Indo Retail Trust’s (LMIRT) 3Q17 results were within expectations. Total revenue increased 5.5% YoY to S$49.6m while NPI increased 7.1% to S$46.4m. The growth was supported by contributions from Lippo Mall Kuta and Lippo Mall Kendari, which were acquired in Dec 2016 and Jun 2017, respectively.
  • Distribution per unit remained flat at 0.86 S cents or 25.4% of our full-year forecast, mainly due to the effect of perpetual securities. 
  • 9M17 DPU was 3.9% higher YoY at 2.64 S cents or 78.1% of our full-year forecast. As at 30 Sept, LMIRT’s gearing ratio stands at 28.7%.

Upward revisions for assumptions on expiring master leases 

  • As mentioned in previous reports, ~10% of LMIRT’s leases by NLA – which were signed in 2007 – are due to expire in 4Q17. As of our last report, we previously assumed a -25% drop in rents to be achieved for the renewed leases occupying this NLA. 
  • Following the latest analyst briefing, we now expect the rental reversion decline to be less severe, as we believe a significant proportion of space that used to be occupied by these master leases can be taken up by higher-yielding specialty stores. As such we now project a -15% rental reversion rate.

Proposed acquisitions of LPJ and Kendiri 

  • We expect the Lippo Plaza Jogja (LPJ) and Kendiri Town Square acquisitions to be completed by year-end and to substantially contribute to FY18F NPI. 
  • Looking ahead to 2018, we expect DPU to be flattish or slightly negative, mainly due to negative rental reversions we project for the expiring leases in 4Q17. After including the acquisitions and rolling our estimates forward, our DDM-based fair value increases from S$0.455 to S$0.460
  • While DPU growth prospects are not expected to be particularly robust in FY18F, we find the currently attractive valuation as well as long-term growth story encouraging. Despite the -1.4% YoY dip in DPU projected for FY18F, LMIRT is still trading at a 7.8% FY18F yield, up to 230 bps higher than the other retail S-REITs which have yields ranging from 5.5% to 6.6% and ~150 bps over the overall S-REIT average. 
  • Given the attractive unit prices, we maintain BUY with a fair value of S$0.460.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2017-11-06
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 0.460 Up 0.455