Lippo Malls Indonesia Retail Trust - CGS-CIMB Research 2020-11-03: Challenging Quarter

LIPPO MALLS INDO RETAIL TRUST (SGX:D5IU)

Lippo Malls Indonesia Retail Trust - Challenging Quarter

Lippo Malls Indonesia Retail Trust's 3Q/9M20 DPU was below expectations at 7.2%/31% of our FY20F forecast.
Challenging operating environment, proposed acquiring Lippo Mall Puri.
Reiterate HOLD with a lower DDM-based Target Price of S$0.09.

Lippo Malls Indonesia Retail Trust (SGX:D5IU) reported a 58.3% y-o-y decline in 3Q20 gross revenue to S$28.9m, on lower rental billings due to shorter mall operating hours, additional rental reliefs to selected tenants, expiry of Lippo Kemang master lease in Dec 19, lower carpark and other income.
While income available for distribution is zero, Lippo Malls Indonesia Retail Trust declared distribution to unitholders of S$2m (DPU: 0.07 cents, -87.5% y-o-y) after taking into consideration restrictions imposed under the terms and conditions of the US$250m 7.25% Guaranteed Senior Notes.
Under these terms, Lippo Malls Indonesia Retail Trust is restricted to make any distributions (in the form of Perpetual Coupons or dividends) unless its aggregate of distributable income less any distributions made to perpetual securities holders and unitholders is greater than zero. If distributable income is equal to zero, Lippo Malls Indonesia Retail Trust is only permitted to make distributions of up to US$5m for the remaining life of the US$ notes. As such, S$4.9m was paid to perpetual security holders on 24 Sep 2020 and S$2m has been declared as dividends for 3Q20.

In terms of operations, Lippo Malls Indonesia Retail Trust indicated that all its 21 malls and 7 retail spaces have resumed operations by 3 Jul 2020, albeit with shorter trading hours. Portfolio occupancy slipped 2.7% pts q-o-q to 85.5% at end-3Q20.
Rental reversions averaged +4.4% in 9M20. It has a remaining 10.7% of its lease portfolio expiring in FY20F. Although shopper traffic recovered from Apr to Aug 2020, it dipped from mid-Sep onwards due to large scale social restrictions (PSBB) which prohibited dining in at its F&B outlets.
Management expects rental income to continue to be adversely impacted in 2H20 due to the shorter operating hours of its tenants (8 hours vs. the usual 12 hours).

Lippo Malls Indonesia Retail Trust proposed the acquisition of Lippo Mall Puri for S$330.2m. The deal comes with a guaranteed net property income of Rp340bn p.a. from completion of transaction till 31 Dec 2024. The trust plans to fund the total acquisition cost of S$391m through bank debt of up to S$120m and a renounceable non-underwritten rights issue of 4682.872m new units (c.160% of existing units) at a price of S$0.06/unit to raise gross proceeds of c.S$280m. Its sponsor has given an irrevocable undertaking to take up its full pro-rata stake and all excess rights units.
Lippo Malls Indonesia Retail Trust’s gearing stands at 42.5% as at end-3Q.

We cut our Lippo Malls Indonesia Retail Trust's FY20-22F DPU estimates by 46.6-64.1% to factor in higher-than-projected operating expenses, lower operational income following the recent PSBB as well as adjusting for the impact of the acquisition of Lippo Mall Puri and the proposed rights issue. Accordingly, our DDM-based Target Price is reduced to S$0.09.
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.
Upside risks: faster-than-expected normalisation of business activities.
Downside risks: continued drag on earnings that could impact distribution income and ability to pay dividends to unitholders.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-11-03

SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.09 DOWN 0.176