Lippo Malls REIT (LMIR)

[KopiKat]

My observation is that especially for the less liquid reits, there is a somewhat lagged reaction to the quarterly results of up to a few days, for whatever reasons. So it is true that luck and fortune favours those who are "fast leg fast hand" when opportunity knocks.

Incidentally, take a look at the chart of mall reits:

[Image: z?s=%5eSTI&t=5y&q=l&l=off&z=l&c=J69U.SI,...&region=US]

Notice that Lippomalls (purple line) was initially tracking the STI (blue line) until it did a massive dilutive rights end 2011 whereupon it started to underperform the STI, joining the company of the other 2 mall reits which also did massive dilutive rights (in 2009) - CMT and Starhill Global (yellow and orange lines respectively). Note: this observation is not necessarily a prediction of the future.

Thx! Always good to see your charts as it paints a thousand words.

Looking at it's recent volume, I wouldn't say it's that low in liquidity. If I have to hazard a guess, it's likely due to some major rebalancing by the bigger players. For now, a net positive since the price has moved higher.

The laggard reaction you mentioned does appear to exist in varying degree for different stocks. It'd appear to be the advantage we ikan bilis investors (the professional fund managers may need more time to make a decision?) enjoy if we're able to "fast leg fast hand"....

[valuestalker]

Hi any vested interest could shed some lights on below, thanks:

LMIR
FY2012 PBT=182, Tax=33, Tax rate= 18.5%
FY2011 PBT=117, Tax=30, Tax rate= 26.2%

CMT
FY2012 PBT=284, Tax=-2, Tax rate= -1% (over provision)
FY2011 PBT=268, Tax=0, Tax rate= 0%

One of the biggest advantage of REIT is its tax free structure.
But in this case, it seems like NOT the case for LMIR.

Wondering if that is the case for FIRST REIT or other REITS with foreign base assets?

[Nick]

Hi any vested interest could shed some lights on below, thanks:

LMIR
FY2012 PBT=182, Tax=33, Tax rate= 18.5%
FY2011 PBT=117, Tax=30, Tax rate= 26.2%

CMT
FY2012 PBT=284, Tax=-2, Tax rate= -1% (over provision)
FY2011 PBT=268, Tax=0, Tax rate= 0%

One of the biggest advantage of REIT is its tax free structure.
But in this case, it seems like NOT the case for LMIR.

Wondering if that is the case for FIRST REIT or other REITS with foreign base assets?

The Singapore based law on tax-free REIT structure (if the Management pays out at least 90% of income) only applies to Singapore properties. It is not applicable to foreign assets. The income earned from LMIR / First REIT is taxed and payable to the Indonesian government. In 1Q 2013, First REIT paid $2.8 million income tax which works out to a 21.8% tax rate. Similarly, Saizen REIT paid 29 million yen income tax in the previous quarter. You may recall that Saizen REIT halted distributions during the GFC crisis and it could do so since there is no incentive to distribute profits unlike REITs with local assets.

(Not Vested)

[Temperament]

Hi any vested interest could shed some lights on below, thanks:

LMIR
FY2012 PBT=182, Tax=33, Tax rate= 18.5%
FY2011 PBT=117, Tax=30, Tax rate= 26.2%

CMT
FY2012 PBT=284, Tax=-2, Tax rate= -1% (over provision)
FY2011 PBT=268, Tax=0, Tax rate= 0%

One of the biggest advantage of REIT is its tax free structure.
But in this case, it seems like NOT the case for LMIR.

Wondering if that is the case for FIRST REIT or other REITS with foreign base assets?

The Singapore based law on tax-free REIT structure (if the Management pays out at least 90% of income) only applies to Singapore properties. It is not applicable to foreign assets. The income earned from LMIR / First REIT is taxed and payable to the Indonesian government. In 1Q 2013, First REIT paid $2.8 million income tax which works out to a 21.8% tax rate. Similarly, Saizen REIT paid 29 million yen income tax in the previous quarter. You may recall that Saizen REIT halted distributions during the GFC crisis and it could do so since there is no incentive to distribute profits unlike REITs with local assets.

(Not Vested)

Does that mean "everything being equal" foreign Reits will be rated lower than Local Reits by the Market?

[Nick]

Hi any vested interest could shed some lights on below, thanks:

LMIR
FY2012 PBT=182, Tax=33, Tax rate= 18.5%
FY2011 PBT=117, Tax=30, Tax rate= 26.2%

CMT
FY2012 PBT=284, Tax=-2, Tax rate= -1% (over provision)
FY2011 PBT=268, Tax=0, Tax rate= 0%

One of the biggest advantage of REIT is its tax free structure.
But in this case, it seems like NOT the case for LMIR.

Wondering if that is the case for FIRST REIT or other REITS with foreign base assets?

The Singapore based law on tax-free REIT structure (if the Management pays out at least 90% of income) only applies to Singapore properties. It is not applicable to foreign assets. The income earned from LMIR / First REIT is taxed and payable to the Indonesian government. In 1Q 2013, First REIT paid $2.8 million income tax which works out to a 21.8% tax rate. Similarly, Saizen REIT paid 29 million yen income tax in the previous quarter. You may recall that Saizen REIT halted distributions during the GFC crisis and it could do so since there is no incentive to distribute profits unlike REITs with local assets.

(Not Vested)

Does that mean "everything being equal" foreign Reits will be rated lower than Local Reits by the Market?

That's possible though I am guessing the foreign REITs will be charging higher rent ie higher NPI yield. First REIT was acquiring hospitals at 9 - 10% NPI yield - doubt you can find such high yielding acquisitions in Singapore.

[AlphaQuant]

Does that mean "everything being equal" foreign Reits will be rated lower than Local Reits by the Market?

i think another consideration will be the cost of borrowing - i.e. the riskfree rate in the local currency. If the cost of borrowing is 6-8% in Indonesia vs 3-5% in Singapore, the equity premium for assets in different countries will need to be adjusted accordingly as well.

[Temperament]

Does that mean "everything being equal" foreign Reits will be rated lower than Local Reits by the Market?

i think another consideration will be the cost of borrowing - i.e. the riskfree rate in the local currency. If the cost of borrowing is 6-8% in Indonesia vs 3-5% in Singapore, the equity premium for assets in different countries will need to be adjusted accordingly as well.

Hm...
Actually, i notice the market seems to rate foreign REITS lower but i thought they maybe just more risky-especially Indonesia or India REITS.

[Nick]

Does that mean "everything being equal" foreign Reits will be rated lower than Local Reits by the Market?

i think another consideration will be the cost of borrowing - i.e. the riskfree rate in the local currency. If the cost of borrowing is 6-8% in Indonesia vs 3-5% in Singapore, the equity premium for assets in different countries will need to be adjusted accordingly as well.

That's true. Can't really compare yield for REITs across different countries. Even locally, REITs with access to cheaper funds will trade at a premium - just compare Maptree Industrial Trust vs Sabana REIT.

MIT

Cost of Debt: 2.4%
Portfolio: $2.7 billion
P/NAV: 1.43

Sabana REIT

Cost of Debt: 4.3%
Portfolio: $1.1 billion
P/NAV: 1.19

[valuestalker]

Thanks Nick for the pointed and precise reply.

Risk of being too simplified, i would say that the foreign asset valuation (if base on cap rate) should be:
Asset valuation = NPI (after tax) / Cap Rate.

Cyclone raised a very valid concern on BTO.
If the terminal value of Pluit Village go to 0 (zero) by 2027.
Should we assign certain discount to its NPI ($21M) as well?

(Not vested in any REITs)
Interested in REIT business model and just for discussion.

[Greenrookie]

Hey guys,

Was looking closely at lippomall again when yield reach 7.5%. It seems like a reasonable yield and taking into consideration the following.

Pluit village mall settled the messy ligitation with carrefour, I am not sure how the out of court settlement terms are, but the trust is insured against such losses if I read correctly. Carrefour has a floor area of about 13000m2 before the issue starts, and carrefour keep to the same area, the occupancy rate at pluit village will improve to above 90% and contribute 3.8 million NPI in a year, which works out to be 0.001772195 cents. Not significant but the amount is like a buffer to protect against rise in fiance cost as a result of interest hike, which everyone is talking about.

Up till 2014, the only floating rate that LMIR is exposed to is for amount of 75 million at a rate of 4.3% They still have 425 million fund not drawn from their MTN. Assume they use it to retire the 147.5million bank loan, and the interest that have to pay become 6.3% (the highest trance of MTN notes is 5.875% due 2017) , the correspond increase in finance cost is only 3 million.

Their gearing is 24%, assume there is no acquisition and loan amount remain the same, but valuation of assets fall due to increase of interest rate, i run the scenario of a 10%, 20%, 30% and 40% drop in valuation, and the gearing become 27%, 30%, 34% and 40% respectively. in other words, valuation has to fall by more than 30% to hit gearing limit. If they get their company rated, the ceiling cap will become 60% then.

seem like the 7.5% yield is "quite safe" till 2015 at least.

Any thoughts??