Lippo Malls REIT (LMIR)

Circular page 29 :
3.8 BOT Schemes
LMIR Trust holds some of the Existing Properties (as defined herein) which it cquired at the time of its initial public offering via BOT Schemes. These Existing Properties are
(i) Cibubur Junction,
(ii) The Plaza Semanggi,
(iii) Ekalokasari Plaza,
(iv) Bandung Indah Plaza and
(v) Istana Plaza.
Similarly, LMIR Trust will also hold the Properties for a fixed period via BOT chemes. Under a BOT Agreement to utilise a piece of land, a private entity receives certain rights from the BOT Grantor1 (as defined herein) to finance, design, construct and operate a facility on the land for a specific period, after which the ownership of the building, together with the underlying land, is transferred back to the BOT Grantor.
A BOT Scheme is not registrable with any Indonesian authority. Rights under a BOT Scheme do not amount to a legal title and represent only contractual interests.

Most of the assets seems at the mercy of BOT Grantor by the expired time.

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(15-11-2011, 02:00 PM)Nick Wrote: I think its like First REIT HGB assets ? Lease renewal is possible. In First REIT case, they renewed leases at a few thousand dollars. There is no such thing as leasehold/freehold assets in Indonesia.

Circular:

An application has been made for the extension of up to 2032 for the BOT AP3. Following expiration of this additional term, a renewal application may be made. The renewal term is usually for 25 to 30 years, subject to approval by the BOT Grantor. A renewal application for the SHGB should be made, at the latest, 24 months prior to the expiry of the relevant SHGB and the renewed term is subject to the discretion of the BOT Grantor.

HGB is a type of land right. It should not confused with BOT. BOT is a contract between parties. The right of land is owned by BOT Grantor at the expired date.

I agree that there is an arbitraging opportunity here. I sell the mother units at 37 cents (cum 1.06 cents) and buy the rights at 2.6 cents. Hence, I pay 31+2.6=33.6 cents for the right units and sold the mother unit nett off dividend at 35.94 cents. The price difference is 2.34 cents- a gain of 2.34/33.6= 6.96%. Note that one has to pay the brokerage fees for selling the mother unit and the rights (NB: one saves a bit on the brokerage fees for the rights) as well as the $2 ATM fees for conversion to right units. The caveat however is that to make the risk-profit calculus meaningful, one has to buy large amounts of the rights.... and hope that the mother share and or rights prices do not fall further.
I suspect that this situation arose because of the volatile market where unitholders are not keen commit more money into the market. But really a 10% yield is enticing. The Indonesian economy is chuggging along nicely. Of course lurking in the dark could be some hidden skeletons.

Can anyone help me on this? Why all the LMIR rights i bought were from DBS Vickers or local Brokerage Houses as counter parties? Is it even retail investors were the sellers, it would only show their brokerages they used as the counter parties?
Thanks.

(15-11-2011, 02:01 PM)bluechipstamp Wrote:

Nick Wrote:it is funny to see its risk profile bumped up !

Prior to this rights issue, LMIR has traditionally been trading at a P/B of betw 54.37% to 63.83% (NAV = 0.846). If we were to use the average, the P/B would be 59.1%.

The rights proceed of 0.31/sh is going to buy similar properties in Indonesia. I would expect the market to value it at the same discount to book.

If so, the "correct" price after the rights issue should be:

59.1% x (0.846 + 0.31) = 0.683 for every 2 shares.
or 0.3416 per share.

This isn't too far away from the current price (2.3c + 31c). So, valuation hasn't changed, at least from a P/B perspective.

The historical PB indicates roughly a 30% discount to asset. And if we used this discount instead of PB, we get a "correct" price of about $0.36+ per unit.

cif5000 Wrote:The historical PB indicates roughly a 30% discount to asset. And if we used this discount instead of PB, we get a "correct" price of about $0.36+ per unit.

I used the pre-rights price within last 1 month+ (about 46c to 54c), which I felt is more indicative of the market "mood" now. You can definitely extend this further back in time.

The main point I was trying to get at is that the 31c rights proceed has to be discounted, unlike what's suggested in the TERP calculation in the circular. When you do, the so called "bargain" will not seem so compelling.

(17-11-2011, 02:17 PM)bluechipstamp Wrote: I used the pre-rights price within last 1 month+ (about 46c to 54c), which I felt is more indicative of the market "mood" now. You can definitely extend this further back in time.

The main point I was trying to get at is that the 31c rights proceed has to be discounted, unlike what's suggested in the TERP calculation in the circular. When you do, the so called "bargain" will not seem so compelling.

Sorry for not being clear. We agree that a discount is required. My point is on the appropriate discount to use.

The discount you used was a discount to net asset. I thought we should leave the liabilities as they are and derive the discount for the assets only. In this case it is something like 41% vs 30%.

Example
Asset: $100
Liability: $50
Net Asset: $50
Market Cap: $25

The discount to net asset is 50%. But if we look at the discount to the asset, the market is valuing the $100 of asset at $75, a 25% discount.

Since LMIR new asset is added without additional liability, I think we should use the "discount to asset" instead of "discount to net asset".

(15-11-2011, 10:46 PM)Temperament Wrote: Can anyone help me on this? Why all the LMIR rights i bought were from DBS Vickers or local Brokerage Houses as counter parties? Is it even retail investors were the sellers, it would only show their brokerages they used as the counter parties?
Thanks.

AFAIK, the CP (Counter Party) you see refers to the Brokerage of the buyer/seller. You won't know who's the CP, whether retail or institutions. For me, I'd guess the CP is an institution if I see non-local brokerage CP and transactions in huge lots and usually mutiple transactions throughout the day eg. in many blocks of 100-200 lots.

In your case, I'd suspect (just a guess) it's the local house traders who're flipping and gambling on the LMIR rights.

hi all! i have a general question involving excess rights.

if i am not an existing unitholder, but purchased some nil-paid rights, will i be included in the ballot for excess rights if i applied for them while exercising my purchased rights?

just wondering if there are any regulations regarding application for excess.

thanks in advance!

(15-11-2011, 02:22 PM)cyclone Wrote: HGB is a type of land right. It should not confused with BOT. BOT is a contract between parties. The right of land is owned by BOT Grantor at the expired date.

I'm trying to understand what is the risk here. Till BOT scheme expiry, the malls still "belong" to LMIRT right? After which, LMIRT has to renew its BOT contract with the grantor or risk losing its malls.

(14-05-2012, 09:12 PM)FFNow Wrote:

(15-11-2011, 02:22 PM)cyclone Wrote: HGB is a type of land right. It should not confused with BOT. BOT is a contract between parties. The right of land is owned by BOT Grantor at the expired date.

I'm trying to understand what is the risk here. Till BOT scheme expiry, the malls still "belong" to LMIRT right? After which, LMIRT has to renew its BOT contract with the grantor or risk losing its malls.

The malls "belong" to LippoMalls until the BOT expiry date. After which, the BOT Grantors 'may' renew the BOT contracts to LippoMalls again.