Monday 12 November 2012

Lippo Malls Indonesia Retail Trust

OCBC on 12 Nov 2012

With effect from 1 May 2012, LMIRT engaged a third party operating company to co-manage its individual retail malls. The operating company is responsible for all costs directly related to the maintenance and operation of the individual retail malls, as well as pay for the rental of office and use of equipment. The operating company also has the right to collect a service charge and statutory income from the tenants. The adjustments for 2Q12 were reflected in the 3Q12 results. 3Q12 results were better than what we expected, partly due to the above arrangements. Total return for the period after tax rose 34.4% YoY to S$21.2m. 9M12 total return for the period before tax and revaluation of S$78.5m equaled 82% of our prior FY12F estimate, which we now raise to S$103m. Rolling forward our model, we raise our fair value from S$0.47 to S$0.52 and upgrade LMIRT from Hold to BUY.

Third party operating company
With effect from 1 May, LMIRT engaged a third party operating company to co-manage its individual retail malls. In the agreements entered into between the property manager PT Lippo Malls Indonesia and the operating company, the operating company is responsible for all costs directly related to the maintenance and operation of the individual retail malls, as well as pay for the rental of office and use of equipment. The operating company also has the right to collect a service charge and statutory income from the tenants. Due to the delay of finalisation of legal documentation and transition of operational responsibilities to the operating company, the service charge and utilities recovery income, and the corresponding expenses for 1 May to 30 Jun, which were taken up in the financial statements of 2Q12, were accounted for accordingly in 3Q12. The adjustment has been reflected in other gain/ (losses) (net).

3Q12 results better-than-expected
3Q12 results were better than what we expected, partly due to the above agreements. 9M12 total return for the period before tax and revaluation of S$78.5m equaled 82% of our prior FY12F estimate, which we now raise to S$103m. 3Q12 gross revenue fell 8.2% YoY to S$30.6m, mainly due to the effect of exchange rates and because 3Q11 gross revenue includes receipt of service charge and utilities recovery from the malls’ operational activities. The decrease in gross revenue was partly offset by the contributions from Pluit Village and Plaza Medan Fair, which were acquired in Dec 2011. Property operating expenses fell from S$10.8m to S$1.0m and net property income rose 31.3% YoY to S$29.5m. Financial expenses rose 186% to S$5.9m mainly due to additional interest expenses and amortisation of transaction costs as a result of the issuance of S$250m worth of notes in 3Q12. Total return for the period after tax rose 34.4% YoY to S$21.2m. 

Upgrade to BUY
Rolling forward our model, we raise our fair value from S$0.47 to S$0.52 and upgrade LMIRT from Hold to BUY.

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