Lippo Malls Indo Retail Trust

OCBC on 27 June 2012

Lippo Malls Indonesia Retail Trust’s (LMIRT) financial flexibility and debt maturity profile is expected to be enhanced with the proposed issuance of two fixed-rate notes under its S$750m guaranteed Euro MTN programme. For FY12, we are positive that the REIT will continue to perform, given the strong domestic consumption in Indonesia. We note that LMIRT’s unit price has fallen 10.5% from its last peak in 24 Apr in tandem with the broader market, despite the expected resilience from its underlying portfolio. This presents a favourable entry point for investors, in our view. As such, we maintain our BUY rating on LMIRT with unchanged fair value of S$0.43.

Notes from MTN programme to provide financial flexibility
Lippo Malls Indonesia Retail Trust’s (LMIRT) financial flexibility and debt maturity profile is expected to be enhanced with the proposed issuance of two fixed-rate notes under its S$750m guaranteed Euro MTN programme. The REIT announced last evening that the S$200m notes and S$50m notes will mature on 6 Jul 2015 and 6 Jul 2017 respectively, and will bear a competitive rate of 4.88% and 5.875% to its existing S$147.5m secured borrowing rate of ~4.6%. This is despite the notes being unsecured obligations of LMIRT. According to the announcement, proceeds will be utilized for corporate funding purposes, including financing acquisitions and asset enhancement works. We believe LMIRT will first use the funds on major refurbishments of Gajah Mada Plaza and Ekalokasari Plaza, as announced in its 2011 annual report.

Good performance likely to be sustained
For FY12, we are positive that LMIRT will continue to perform, given the strong domestic consumption in Indonesia. Real retail sales have consistently been raking in double-digit YoY growth since Nov 2011 (Apr 2012: 10.5%), while the current expectation is that sales will further improve in the following 3-6 months, based on the retail sales survey by Central Bank of Indonesia. This is likely to drive the shopper traffic at its malls and keep its tenant retention rate at high levels (Dec 2011: 80.0%). Already, we note that LMIRT’s portfolio occupancy as at 31 Mar was at 94.5%. This is above the industry average of 87.6%.

Maintain BUY
We continue to like LMIRT for its strong financial position (aggregate leverage at 9.2%, with no refinancing needs until 2014), growth potential and sound industry fundamentals. The unit price has fallen 10.5% from its last peak in 24 Apr in tandem with the broader market, despite the expected resilience from its underlying portfolio. This presents a favourable entry point for investors, in our view. As such, maintain BUY with unchanged fair value of S$0.43.