• DPU drops 24.7% YoY
• 9.1% weakening in rupiah
• Annualized 1Q18 yield of 8.4%

1Q18 Results In-line

Lippo Malls Indo Retail Trust’s (LMIRT) results were on the higher end of our expectations with 1Q18 DPU falling 24.7% YoY to 0.67 S cents. This quarter’s distributions were hit by a 9.1% weakening in the rupiah, the new tax regulation, as well as an increase in total property operating expenses. In SGD terms, 1Q18 revenue and NPI increased 1.1% to S$49.1m and dropped 4.6% to S$43.9m, respectively. In rupiah terms, 1Q18 gross revenue and NPI grew 10.3% and 4.1% YoY, respectively.

Operational Challenges Have Cropped Up in the Past Year

Recall that multiple issues have presented themselves in the past year. Some of these have a clearly negative impact on distributable income: the non-renewal of master leases at the retail spaces, income leakage from the master lease renewal at Kemang, rupiah weakness which has hit NPI growth in SGD as well as resulted in higher realized losses from hedging, and most recently the tax regulations on service and utility coverage charges.

Others have had a negative bearing on sentiment surrounding the REIT, such as the sudden sell-down in the unit price on 27 Nov 2017 and the Moody’s review as announced on 21 Dec 2017. Importantly, the unfortunate news leak regarding discussions of a potential rights issue has also weighed down the stock.

Reallocation of Resources

We believe that much of the impact from the operational issues mentioned above have already been reflected in the 1Q DPU performance. However, we continue to believe that the possibility of the rights issue will continue to weigh on unit prices and see little upside catalyst in the near horizon.

As of 4 May’s close, LMIRT is trading at a FY17 (historical) yield of 10.8% and an annualized 1Q18 yield of 8.4%. Due to a reallocation of internal resources, we are CEASING COVERAGE on the REIT.

Source: OCBC Research - 8 May 2018