Lippo Malls REIT (LMIR)

[level13]

19 million shares married deal at $0.345 today --> $6.555m trade

Lippomalls is another potential turnaround stock in my opinion. (Avi-Tech & Fu Yu are others in my view)

Bugbear for Lippomalls has always been the weak rupiah but suggestions by Indonesian Central Bank is that they are going to put out measures to ensure the rupiah does not weaken anymore. How successful the measures will be remains to be seen of course but of course, this is a potential catalyst for Lippomalls.

Share price has punished significantly since May 2013 and currently trading near 5 year lows but with the recent acquisitions and fund raising having been completed, there does not appear to be much visible downsides risks remaining in my opinion.

Currently trading at an attractive yield of 7.886% and price to book of 0.8226, this is one Reit that I feel is worth keeping an eye on in the sea of overvalued Reits at this moment.

Let me play the devil's advocate here. Although i agree with your comments that the currency exchange is stabilising and the share px is hovering at a 5 yr low, there is still the issue of debt repayment and how is LMIRT going to do it.

Let me illustrate using Q4 2014 financial report:
Debt due in July 2015 - SGD 200 Mil
Dividend to be paid in 2015 - SGD 68 Mil (assuming same as Y2014)

Current cash amount - SGD 104 Mil
Receivables - SGD 67 Mil

That still leaves a shortfall of SGD 97 Mil. How will LMIRT meet its obligation? Do private placement or rights issue?

The company has been involved in the above actions for the past few years and minority shareholder stake gets diluted further. The share px will go further down if LMIRT continues to engage in such corporate actions.

(Not vested)

The news out today ties back to my question some time back.
How will LMIRT meet its obligation?

http://www.theedgemarkets.com/sg/article...ile-market

[DCF]

There is a obvious misalignment between the management and the unit holders. Many unit holders have questioned the mismatch between their assets and income in IDR, and all of their loan is in Sing$ currency. Management acknowledged the issue, but do nothing to address it. That's fair given that this may be the nature of Indo properties. However, two other things tell me other wise:

1 Before resolving this mismatch issue, they keep adding more property and enlarge the mismatch even more. So the risk is getting higher and higher. My guess is that they are given the mandate to absorb properties from the sponsor, with a higher priority increasing unit holder value.

2 In the last property purchase, they fund it partially by private placement, at a price of 0.34 when market value was higher, (either 0.36 or 0.38). I hold their share then and noticed that my shares were borrowed by the private bank underwrite the placement. So the bank made their money by shorting my share and cover it with placement share. This lead to the share drop below placement price. So I think they don't care about existing shareholders when they conduct placement

Finally, the stock may turn around if the IDR move up against S$. Given that Jokowi goverment increasing nationalist inclination (e.g. reviewing all trade agreement with all countries), I think the chance is small. Even if the currency turn stronger, they are many much better IDR play whose management team is aligned with shareholders.

[boochap]

There is a obvious misalignment between the management and the unit holders. Many unit holders have questioned the mismatch between their assets and income in IDR, and all of their loan is in Sing$ currency. Management acknowledged the issue, but do nothing to address it. That's fair given that this may be the nature of Indo properties. However, two other things tell me other wise:

1 Before resolving this mismatch issue, they keep adding more property and enlarge the mismatch even more. So the risk is getting higher and higher. My guess is that they are given the mandate to absorb properties from the sponsor, with a higher priority increasing unit holder value.

2 In the last property purchase, they fund it partially by private placement, at a price of 0.34 when market value was higher, (either 0.36 or 0.38). I hold their share then and noticed that my shares were borrowed by the private bank underwrite the placement. So the bank made their money by shorting my share and cover it with placement share. This lead to the share drop below placement price. So I think they don't care about existing shareholders when they conduct placement

Finally, the stock may turn around if the IDR move up against S$. Given that Jokowi goverment increasing nationalist inclination (e.g. reviewing all trade agreement with all countries), I think the chance is small. Even if the currency turn stronger, they are many much better IDR play whose management team is aligned with shareholders.

I dont understand why you would be unhappy with they shorting your shares. They are not allowed to short your shares unless you have signed an agreement to loan them your shares for them to short, and u will receive interest for lending those shares. so, who are u blaming?

On the fx risk, this is very common among all the foreign company coming to sg to raise fund. singapore benchmark interest rate has been hovering close to zero % for so many years, it is cheapest here in sg to borrow money. vs more than >5% in most of the emerging market. 7.5% in indonesia, 5.1% in china..this is only the benchmark rate, u have to add on another 3-5% more depending on the credit risk profile of the company.

LMIR claimed that they had hedge 93% of their fx exposure, this should give unitholder some reassurance for their future distribution. On top of this, they get their first corporate Rating of Baa3 issued by Moody’s, and
their latest 75m$ sgd bond issues was taken up at 4.1%, which is the cheapest refinancing they have so far secured compared to their previous issues, ranging between 5.8-4.25%.

[DCF]

I dont understand why you would be unhappy with they shorting your shares. They are not allowed to short your shares unless you have signed an agreement to loan them your shares for them to short, and u will receive interest for lending those shares. so, who are u blaming?

On the fx risk, this is very common among all the foreign company coming to sg to raise fund. singapore benchmark interest rate has been hovering close to zero % for so many years, it is cheapest here in sg to borrow money. vs more than >5% in most of the emerging market. 7.5% in indonesia, 5.1% in china..this is only the benchmark rate, u have to add on another 3-5% more depending on the credit risk profile of the company.

LMIR claimed that they had hedge 93% of their fx exposure, this should give unitholder some reassurance for their future distribution. On top of this, they get their first corporate Rating of Baa3 issued by Moody’s, and
their latest 75m$ sgd bond issues was taken up at 4.1%, which is the cheapest refinancing they have so far secured compared to their previous issues, ranging between 5.8-4.25%.

On loaning out share, the 4% pa interest is much lower than the drop in price of the share.

on hedging, it is only hedge against income and not asset.

[greengiraffe]

3 year Lippo Capital Pte Ltd
 
 
Initial Yield guidance at cost
4.50% area
Expected Issue Size
SGD Benchmark
Denomination
USD 200k x 1k
Timing
Books Open
Comments
To follow
Risk Rating
3N Indicative
LV
Zero
 
ISSUER:                                               LMIRT Capital Pte. Ltd.
GUARANTOR:                                       HSBC Institutional Trust Services (Singapore) Limited (in its capacity as trustee of Lippo Malls Indonesia                           
Retail Trust (“LMIR Trust”))
LMIR Trust RATING:                               Baa3 by Moody’s
ISSUE RATING:                         Unrated
FORMAT:                                              Reg S, S274 & 275 of Singapore SFA, issuance off S$1 billion Guaranteed  Euro Medium Term Securities                                 
Programme, with latest offering circular dated 8 September 2015 (the “Programme”)
ISSUE SIZE:                                         SGD Benchmark
TENOR:                                                3-Yr
INITIAL PRICE GUIDANCE:                    4.50% area
STATUS                                                Senior, unsubordinated and unsecured
USE OF PROCEEDS:                           As per the Programme
PAYMENT:                                           Semi-annual, Actual / 365 (fixed)
DETAILS:                                              Bearer / SGD250K / English Law / CDP
LISTING:                                               SGX-ST
JOINT BOOKRUNNERS:                        BNP PARIBAS, OCBC Bank and Standard Chartered Bank
B&D:                                                    Standard Chartered Bank
TIMING:                                                As early as today
 
Comps:
 
LMRTSP 4.1 06/22/20                                    4.58%

[corydorus]

There is a obvious misalignment between the management and the unit holders. Many unit holders have questioned the mismatch between their assets and income in IDR, and all of their loan is in Sing$ currency. Management acknowledged the issue, but do nothing to address it. That's fair given that this may be the nature of Indo properties. However, two other things tell me other wise:

1 Before resolving this mismatch issue, they keep adding more property and enlarge the mismatch even more. So the risk is getting higher and higher. My guess is that they are given the mandate to absorb properties from the sponsor, with a higher priority increasing unit holder value.

2 In the last property purchase, they fund it partially by private placement, at a price of 0.34 when market value was higher, (either 0.36 or 0.38). I hold their share then and noticed that my shares were borrowed by the private bank underwrite the placement. So the bank made their money by shorting my share and cover it with placement share. This lead to the share drop below placement price. So I think they don't care about existing shareholders when they conduct placement

Finally, the stock may turn around if the IDR move up against S$. Given that Jokowi goverment increasing nationalist inclination (e.g. reviewing all trade agreement with all countries), I think the chance is small. Even if the currency turn stronger, they are many much better IDR play whose management team is aligned with shareholders.

I once did some mental calculation on returns vs stock dilution over a periods, and the decision is quite easy to make not to touch this one. Most other reits have much better returns above their cost. I think you make the right decision. Not many will. And this differentiate investor especially when answer is on the WALL.

[Greenrookie]

Vested interest 

Like to point out a few nuances 

All the highly dilutive rights are done by the previous CEO ( family member who treat trust as a pure dumping ground)

Then:
1) Hugh discount from AV. Price
2) Acquisition is not immediate yield accretive 
3) Occupancy rate of Pulit Village, one of the bigger acquisition has occupancy rate of only 75% and required yield support. It continued to be the weaker link. 

After Alvin took over.

1) discount is smaller, although it is still value destroyer since issue price is at below NAV
2) placement by parent if fixed at higher price than market AV. Price 
3) propose placement size reduced 
4) got trust rated (which is a no brainer but well, the previous CEO ...), and as a result had the lowest interest cost for the latest loan
5) most importantly, dilution is not that important anymore when the fund raise for acquisition is yield accretive, which is the case for Kemang village.

Of course, it is still not the same league as some of the blue chip REIT in Singapore but too many brush aside these small details. Of course, Alvin is just a manager and if the owner want him to do something not aligned to shareholder , he also LL.

But at current yield level, and the possibility that those "selfish rights" are not repeated, I do not think the verdict is so cast in stone like what some buddies said

[weijian]

Vested interest 

Like to point out a few nuances 

All the highly dilutive rights are done by the previous CEO ( family member who treat trust as a pure dumping ground)

Then:
1) Hugh discount from AV. Price
2) Acquisition is not immediate yield accretive 
3) Occupancy rate of Pulit Village, one of the bigger acquisition has occupancy rate of only 75% and required yield support. It continued to be the weaker link. 

After Alvin took over.

1) discount is smaller, although it is still value destroyer since issue price is at below NAV
2) placement by parent if fixed at higher price than market AV. Price 
3) propose placement size reduced 
4) got trust rated (which is a no brainer but well, the previous CEO ...), and as a result had the lowest interest cost for the latest loan
5) most importantly, dilution is not that important anymore when the fund raise for acquisition is yield accretive, which is the case for Kemang village.

Of course, it is still not the same league as some of the blue chip REIT in Singapore but too many brush aside these small details. Of course, Alvin is just a manager and if the owner want him to do something not aligned to shareholder , he also LL.

But at current yield level, and the possibility that those "selfish rights" are not repeated, I do not think the verdict is so cast in stone like what some buddies said

hi Greenrookie,
In my corporate career, I don't see many who don't toe the party line AND get promoted. In many business stories I read, it is the same. I read your blog and know you are in the teaching line. My fellow friend who is a teacher back up my observation too. Lippo Group's patriarch Moktar Riady is a GodFather in his own right. I don't think he will install someone who doesn't listen to his bidding. He can always use the Board to sack him if he becomes too "independently-minded". If I were Alvin, I know where my allegiance lies.

There are many ways to work on making a acquisition yield accretive.. This involves (1) income support for a definite period of time, (2) using more aggressive cap rates and leveraging to the max...maybe u want to take a closer look? (P.S. I don't dwell too much in this kemang acquisition since I generally try to position to stay besides the Godfather, rather than in his rubbish bin)

[cyclone]

On 8 January 2016, LMIR Trust has  entered into a conditional sale and purchase agreement with PT Pamor Paramita Utama for the acquisition of a property known as "Lippo Mall Kuta".

Lippo Mall Kuta is a three-storey retail mall which is located in Kuta, Bali with postal address Jalan Kartika Plaza, Lingkungan Segara, Kuta, Bali, Indonesia.

The total cost of Lippo Mall Kuta acquisition is estimated to be approximately S$ 92.7 million based on illustrative exchange rate of S$1.00 to Rp. 9.800.

[corydorus]

Just curious. Why are they still on acquisition if they plan to de-list ? Why not do all this after....