Lippo Malls Indonesia Retail Trust - CGS-CIMB Research 2020-05-05: Drags From Covid-19

LIPPO MALLS INDO RETAIL TRUST (SGX:D5IU)

Lippo Malls Indonesia Retail Trust - Drags From Covid-19

Lippo Malls Indonesia Retail Trust's 1Q20 DPU of 0.12 Scts is below expectations at 5% of our FY20F forecast.
We expect mall closures to impact 2Q20F earnings, while continued weakness in the rupiah against S$ has lifted the gearing level.
Maintain HOLD with a lower DDM-based Target Price of S$0.20.

Lippo Malls Indonesia Retail Trust (SGX:D5IU) reported a 1.5% y-o-y decline in 1Q20 gross revenue to S$64.9m due to lower rental income from the expiry of master leases at Lippo Mall Kemang in Dec 2019, partly offset by positive rental reversion.
However, DPU fell 78.2% y-o-y to 0.12 Scts (24% payout ratio) with the retention of S$11m of income in view of the Covid-19 situation and temporary closure of all malls within the portfolio.

Portfolio occupancy slipped 0.6% pts q-o-q to 90.9% at end-1Q20. In 1Q, Lippo Malls Indonesia Retail Trust benefited from an average 4.1% positive rental reversion as it renewed more than one third of the 18.4% of portfolio leases expiring in FY20F. That said, management indicated that the impact of mall closures due to Covid-19 had caused portfolio daily shopper traffic to decline significantly from 300k/day in mid-Mar to 50k/day in Apr as only essential services remained open.
At end-Mar, Lippo Malls Indonesia Retail Trust announced the closure of all 23 malls and 7 retail spaces from 1-14 Apr, except for essential services. This has since been extended to 13 May. Rentals have been waived during the closure period.
In addition, despite reducing operating costs, net property income margin is set to be significantly lower in 2Q (1Q: 61.5%) due to the mall closures.

With a lower Rp/S$ exchange rate (1Q20: 11,369 vs. 4Q19: 10,321), asset values on Lippo Malls Indonesia Retail Trust’s balance sheet have been adversely impacted on translation. This, together with a slight uptick in borrowings, resulted in a higher gearing of 42.1% at end-1Q20.
It remains in compliance with its debt covenants and will have sufficient cash on hand to repay the S$75m in borrowings due this year.
Lippo Malls Indonesia Retail Trust also has S$260m of perpetual securities, issued in 2016/2017. These perpetuals have a right to receive distributions semi-annually but Lippo Malls Indonesia Retail Trust has the discretion to elect not to pay distribution for each period. The perps are subordinated in nature to senior obligations. In view of the Covid-19 pandemic, no distributions attributed to these perps have been accrued.
A decision to make such distributions would be made closer to the date of such distributions.

We cut our Lippo Malls Indonesia Retail Trust's FY20F DPU estimates by 28% to factor in the loss of income during the mall closures. In addition, our DDM-based Target Price is reduced to S$0.20 on the assumption of higher cost of equity of 12% (vs. 10% previously) due to perceived higher risk should the perpetual coupons be delayed/not paid.
See Lippo Malls Indonesia Retail Trust Share Price; Lippo Malls Indonesia Retail Trust Target Price; Lippo Malls Indonesia Retail Trust Analyst Reports; Lippo Malls Indonesia Retail Trust Dividend History; Lippo Malls Indonesia Retail Trust Announcements; Lippo Malls Indonesia Retail Trust Latest News.
Downside risks to our call include forex volatility and risk of dividends payments if perpetual coupons are not distributed.
Upside risks could come from faster-than-expected recovery from the Covid-19 outbreak.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-05-05

SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.20 DOWN 0.240