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Author: kimeng   |   Latest post: Tue, 24 Apr 2018, 02:21 PM

 

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

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  • 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 averagematurity 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.

Source: OCBC Research - 17 Feb 2017

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