Monday 7 January 2013

Lippo Malls Indonesia Retail Trust

OCBC on 4 Jan 2013

According to a Bloomberg article dated 21 Dec 2012, PT Lippo Karawaci, Indonesia’s largest listed property company and LMIRT’s sponsor, will have finished building about half of the 15 new malls it has planned for by 2015, in cities such as Semarang in north Java, Denpasar in Bali and Manado in north Sulawesi province. Starting from a lower base of development, we believe that some of these cities should see higher rates of retail growth than Jakarta. These malls could serve as a longer term pipeline for LMIRT. We maintain our fair value of S$0.52 and BUY rating on LMIRT.

Completed acquisition of two malls
In Oct 2012, LMIRT acquired four retail properties via non-interested party transactions. Since winning unitholders’ approval (at a 13 Dec 2012 EGM) for the acquisition of two more retail malls via interested party transactions, LMIRT has completed the acquisition of both malls in 2012. Funding for these acquisitions chiefly come from: 1) issuance of S$250m in early Jul under its S$750m MTN programme (the S$200m three-year notes were priced at 4.88% while the S$50m five-year notes were priced at 5.875%, giving a blended interest rate of ~5.1%), and (2) issuance of S$75m 4.48% five-year notes in Nov.

LT pipeline from sponsor
According to a Bloomberg article dated 21 Dec 2012, PT Lippo Karawaci, Indonesia’s largest listed property company and LMIRT’s sponsor, will have finished building about half of the 15 new malls it has planned for by 2015, in cities such as Semarang in north Java, Denpasar in Bali and Manado in north Sulawesi province. Starting from a lower base of development, we believe that some of these cities should see higher rates of retail growth than Jakarta. These malls could serve as a longer term pipeline for LMIRT. 

Increase in minimum wage
It has been announced that minimum wages will be increased across Indonesia, with the highest increase planned for Jakarta – an increase of 44% in 2013 to IDR 2.2m (~S$280 per month). The increase in minimum wages could result in higher consumer spending, although the increases are likely to be concentrated at the lowest-end retail outlets. Indonesia’s retail sales index grew by 19% in Oct 2012. Management has indicated that rents for most tenants are rising by ~5% p.a., while rents for anchor tenants are increasing by ~3% p.a. 

Maintain BUY
We maintain our fair value of S$0.52 and BUY rating on LMIRT.

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