Lippo Malls REIT (LMIR)

(28-08-2013, 04:45 PM)Nick Wrote: S$ 147.5 million loan facility to mature in June 2014.
S$ 200 million 4.88% fixed rate note (EMTN Program) to mature in July 2015
S$ 50 million 5.875% fixed rate note (EMTN Program) to mature in July 2017
S$ 75 million 4.48% fixed rate note (EMTN Program) to mature in Nov 2017

http://infopub.sgx.com/FileOpen/2013_2Q_...eID=250487 [Slide 14]

Unless I am mistaken, doesn't this means the debt (especially the fixed rate notes) are priced in SGD ? This would imply debt and interest expenses are in SGD while its operating revenue and property valuation are in IDR. If IDR continues to depreciate against the SGD, a larger portion of the revenue will be diverted to pay the interest and the lower property valuation will result in higher gearing. Granted, the Management would have probably hedged forex movements in the short term but nonetheless I guess this is why the market is selling it down ?

(Not Vested)

Hmm.. you are right that the effect is not as straightforward as I had thought. If the debt are priced in SGD, then the effect of the drop in IDR against SGD might be more severe.

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Presume that the base revenue & expenses in IDR is the same for the coming quarter compare to the last quarter.

For last quarter, the div is 0.0093 cts.

Total Unit: 2197268028
=> total distribution = S$20,434,592 = SGD20.4 mil

Presume for previous distribution, exchange rate is SGD1 vs IDR7800 => SGD20.4 mil = IDR159120
Presume the interest for S$147.5 million due 2014 is 5.8%, Interest yearly amounted to $24.615 million

at 1SGD vs IDR7800, S$24.615 mil = IDR191977 mil
at 1SGD vs IDR8500, S$24.615 mil = IDR209206 mil

i.e. an addition of IDR17228 mil.

=> Amount avail for distribution will decrease to IDR141892 = SGD16.69 mil (at IDR8500)

This will translate to about SGD0.007597 per quarter, translate to per annum, it will be 3.0389 cts.

At 40cts, it is at 7.5% yield.

However, if the S$147.5 million can be refinance at a lower rate than 5.8% that I presume, then the yield could be slightly higher.

(28-08-2013, 05:50 PM)starcraft_76 Wrote:

(28-08-2013, 04:45 PM)Nick Wrote: S$ 147.5 million loan facility to mature in June 2014.
S$ 200 million 4.88% fixed rate note (EMTN Program) to mature in July 2015
S$ 50 million 5.875% fixed rate note (EMTN Program) to mature in July 2017
S$ 75 million 4.48% fixed rate note (EMTN Program) to mature in Nov 2017

http://infopub.sgx.com/FileOpen/2013_2Q_...eID=250487 [Slide 14]

Unless I am mistaken, doesn't this means the debt (especially the fixed rate notes) are priced in SGD ? This would imply debt and interest expenses are in SGD while its operating revenue and property valuation are in IDR. If IDR continues to depreciate against the SGD, a larger portion of the revenue will be diverted to pay the interest and the lower property valuation will result in higher gearing. Granted, the Management would have probably hedged forex movements in the short term but nonetheless I guess this is why the market is selling it down ?

(Not Vested)

Hmm.. you are right that the effect is not as straightforward as I had thought. If the debt are priced in SGD, then the effect of the drop in IDR against SGD might be more severe.

---

Presume that the base revenue & expenses in IDR is the same for the coming quarter compare to the last quarter.

For last quarter, the div is 0.0093 cts.

Total Unit: 2197268028
=> total distribution = S$20,434,592 = SGD20.4 mil

Presume for previous distribution, exchange rate is SGD1 vs IDR7800 => SGD20.4 mil = IDR159120
Presume the interest for S$147.5 million due 2014 is 5.8%, Interest yearly amounted to $24.615 million

at 1SGD vs IDR7800, S$24.615 mil = IDR191977 mil
at 1SGD vs IDR8500, S$24.615 mil = IDR209206 mil

i.e. an addition of IDR17228 mil.

=> Amount avail for distribution will decrease to IDR141892 = SGD16.69 mil (at IDR8500)

This will translate to about SGD0.007597 per quarter, translate to per annum, it will be 3.0389 cts.

At 40cts, it is at 7.5% yield.

However, if the S$147.5 million can be refinance at a lower rate than 5.8% that I presume, then the yield could be slightly higher.

From 2012 AR:
A hypothetical 10% strengthening in the exchange rate of
the functional currency $ against the Indonesian Rupiah with
all other variables held constant would have an (adverse)
favourable eff ect on total return before tax of – – (2,680,000)
A hypothetical 10% strengthening in the exchange rate of
the functional currency $ against the Indonesian Rupiah with
all other variables held constant would have an (adverse)
favourable eff ect on currency translation reserve of (6,153,000)

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Interest due for 147.5m in 2014 is 4.29%
------------

A hypothetical variation in interest rates by 10 basis points with all other variables held
constant, would have an increase/decrease in pre-tax return for the year by 66000

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Doesn't at all seem justified IMO, the drastic fall, but if you think currency will fall 50%, then a different story will emerge.

Was looking deeper at the impact of a fast depreciating rupiah

[Image: pic.png]

I look at historical data, and identify 2008 Q4 and 2009 Q2 to be the two quarters of big exchange rate gain and loss.

While currency fluctuation affect the size of unrealized loss/gain of exchange forward contracts, all these gains or loss are always considered as non-cash items that didn't affect distribution.

I know I might sound stupid asking this qn after babbling so much nonsense above, so what actually is the issue with depreciating currency besides that of higher finance costs? Revenue(gross rent) and distribution does not seem to be affected at all throughout the last five years.

(09-09-2013, 12:29 AM)Greenrookie Wrote: so what actually is the issue with depreciating currency besides that of higher finance costs? Revenue(gross rent) and distribution does not seem to be affected at all throughout the last five years.

not vested in LMIR, but assuming that this REIT is involved in malls located in indonesia, with revenue in IDR, debt+distributions in SGD

1) interest payment: repayment in SGD will translate into a higher equivalent in IDR
2) debt rollover: given the assets are in indonesia, how likely are they able to secure debt rollover from Singapore based funding sources on favorable terms (at worst, using their malls as collateral) - failure to get good rates means
a) equity raising via rights/placements
b) idr funding sources - note 10y IDR bonds are now at 8.5% vs SGD @ 2.7. This translates into a higher funding costs if SGD funds cannot be secured.
Will the IDR depreciation lead to loss of confidence in Sg banks to lend to them?
3) Is the foreign capital outflow + raising of FASBI rates going to choke off domestic growth hence domestic consumption demand? Inflation in indonesia is now at 8.8% - is the economy heading into a situation of stagflation? Malls afterall, are only as good as the ability of the locals to spend, and if consumer confidence gets hit, tenant vacancies will rise. Think of the ghost malls during AFC.

Jakarta has way too many malls...

http://en.tempo.co/read/news/2013/09/16/...in-Jakarta

(05-11-2013, 02:29 PM)mulyc Wrote: Jakarta has way too many malls...

http://en.tempo.co/read/news/2013/09/16/...in-Jakarta

If he can carry throu what he says, this is good news than bad, effectively closing off competition in Jakarta

Restriction of building new malls means existing malls will benefit if they are well managed.

The growing middle income in Jakarta needs more shopping area. This restriction will not be good for the Jakarta residents.

Tomorrow its quarterly results will be known. Let's see how it performs.

The shopping mall restriction (moratorium) has been in place since Oct 2011. However, there are several shopping malls under construction which have obtained the approval before then.

The significant impact of the moratorium is the popping up of shopping malls in satellite cities around Jakarta (Bekasi, Tangerang, Depok, Serpong etc).
Take note that those cities are mostly just within an hour or two hours away from Jakarta. Although those malls are usually smaller size.

Indeed, generally the moratorium benefits the existing malls.
During such time when Foreign brands are eagerly looking to join the party of growing Jakarta middle class consumers.

It also specifically benefit the modern, well known & middle-high malls such as Plaza Indonesia, Central Park, Pondok Indah & most of the malls in CBD area.
There are news of luxury brands queuing to enter Plaza Indonesia & those cbd malls.

Imo, the biggest issue with LMIR is in its malls, which tend to be rather aged and mid-low end segment.
Its better assets are probably Pluit Village (but getting more and more lower end) and malls in Medan (middle-high).

Pluit Village's NPI should be boosted by the re-opening of Carrefour but impact shouldn't be significant as it is already under rental support.

Not vested but keen to watch the development.
Above are purely my opinions and shall be taken with the pinch of salt.

3Q 2013 DPU up by 19.2% yoy to 0.87 cents.
Record date: 14/11/2013
Distribution date:29/11/2013

Good DPU for the past 3 quarters.
Quite satisfied with the new management so far.
Hope they can reap benefits from the restriction in Jakarta.

(Vested)