Lippo Malls Indonesia Retail Trust

OCBC on 19 Sept 2012

We have incorporated assumptions into our model about potential acquisitions that may be funded by the S$250m raised by LMIRT in early Jul under its S$750m MTN programme. We assume the acquisitions will be yield-accretive with initial net property yields of ~8.5%. The S$200m 3-year bonds were priced at 4.88% while the S$50m 5-year bonds were priced at 5.875%, giving a blended interest rate of ~5.1%. Since no proposed acquisitions have been announced yet, we believe that the end of this year is the earliest any acquisitions are likely to be completed. Before the acquisitions are completed, there is likely to be a drag on DPU due to the additional interest expense. We also have some concern about growth in the Jakarta retail space supply over 2012 and 2013 (+12.1% YoY and +18.2% YoY). We maintain our fair value of S$0.45 but downgrade LMIRT to a HOLD since the share price is close to our fair value.

Incorporating acquisition assumptions
We have incorporated assumptions into our model about potential acquisitions that may be funded by the S$250m raised by LMIRT in early Jul under its S$750m MTN programme. The S$200m 3-year bonds were priced at 4.88% while the S$50m 5-year bonds were priced at 5.875%, giving a blended interest rate of ~5.1%. Before the acquisitions are completed, we should see a short-term drag on DPU due to the additional interest expense. We anticipate that the acquisitions will be yield-accretive with initial net property yields of ~8.5%. We assume an acquisition of S$100m will be completed on 1 Jan 2013 and an acquisition of S$150m will be completed on 1 Apr 2013.

Good pre-commitment level for 2012 JKT retail supply
According to DTZ, there was no new additional retail space supply for Jakarta in 1Q12. In 2Q12, the 21k sqm Ancol Beach City in North Jakarta brought the total supply to 1.94m sqm in NLA. The total supply growth expected for 2012 is 12.1% YoY, with Kota Kasablanka (82k sqm) and Ciputra World (130k sqm), both located in South Jakarta, forming the rest of the supply. The pre-commitment level for the 233k sqm is 88%, in line with the 2Q12 Jakarta retail market occupancy rate of 87.5%.

Significant supply coming onboard in 2013
LMIRT registers 58% of its portfolio NLA in Greater Jakarta. 16% of the portfolio NLA is located in North Jakarta (Pluit Village), and another 14% is located in South Jakarta (The Plaza Semanggi and Depok Town Square Units). It is worthwhile noting that some 391k sqm of retail space is expected to come to the market in 2013 (DTZ), implying substantial YoY growth of 18.2%, which will likely increase competition.

Downgrade to HOLD
We maintain our fair value of S$0.45 but downgrade LMIRT to a HOLD since the share price is close to our fair value.