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)

[ghchua]

Most possibly debt will be re-financed to a further date down the road rather than being repaid. Why do they need to repay debt?

[level13]

Most possibly debt will be re-financed to a further date down the road rather than being repaid. Why do they need to repay debt?

Of course if LMIRT can re-finance that will be good. But who can be 100% sure they will be able to do that?

And if taking more debt and doing re-financing is easy, then why do they resort to rights issue and private placements previously?

[sgpunter]

Most Reits and property developers I know work on the same model - refinance the loan when the loan is due.

I believe the rights issue and private placements are to fund acquisitions which are supposed to be yield accretive. I have no comments honestly on whether the acquisitions are a right move or otherwise (although most probably see it as bad acquisitions given how the share price has been punished) but I don't see anything wrong with raising funds via placements or rights to pay for acquisitions.

Having the LIPPO name behind LMIR, I don't foresee any difficulty at all from getting loans with most banks. In fact, I believe the contrary is true and LMIR can afford to shop around banks for the best lending terms.

[boochap]

if you want to know how well they could refinance their debt, take a look at the YTM of their existing corp bonds in the market today.

LMIRT bonds fetch around 4% yield to maturity today, and most of them trading above par. You can call up your private banker to check it out yourself.

e.g.
06-Jul-2017, 5.875% coupon at 103.851, YTM 3.99%.
28-Nov-2017, 4.48% coupon, at 101.061 YTM 3.97%

4% yield to maturity for 2-3yr duration is as good as u can get for a mid cap counter, (hyflux is also around this level). basically, bondholders expect them to be able to service their interest payment easily, and are more willing to pay above par for the bonds. so, I won't expect any difficulty for them to get refinancing at all. To put it in a better perspective, corp bonds of most of the o&m couners - ezion, swiber, vibrant, are all trading badly below par, fetching >10% ytm in the market today...we jolly well know their problems, they are in the junk bonds category.

If we expect interest rate to start to rise this yr, it would be better to have majority of the refinancing done this yr in order to lock in a lower financing cost for the next few yrs rather then to defer the refinancing to 2016 or 2017. When interest goes up, it not going to stop at 2015...it will keep going up until the economy fall apart. i see that lmirt has majority of debt maturing in 2015, which i think is a good strategy, in my opinion.

[Greenrookie]

Hi buddies,

Not sure if someone ask this before.

In the latest LMIR results, about half of dividends given is capital distribution. Capital distribution means a return of capital? Because LMIR malls are leased hold? Then why is HPHT whose ports only have 30 over years of lease use cash distribution?

[AQ.]

In the latest LMIR results, about half of dividends given is capital distribution. Capital distribution means a return of capital? Because LMIR malls are leased hold? Then why is HPHT whose ports only have 30 over years of lease use cash distribution?

Not vested, but out of curiousity i took a look at the trust structure. (you can find it in the prospectus or the AR)

The way the capital flows is this:

LMIR takes the money raised thru fund raising and buys ordinary shares+preference shares in Sg SPC
Sg SPC takes the money and provides loans to Indo SPCs
Indo SPCs takes the money and buy the properties.

On distributions,
Indo SPCs take the rents and pay Sg SPCs
Sg SPCs take the money, and pays dividends on the ordinary and preference shares and then redeems part of the preferences
LMIR receives dividends from ordinary and preference shares, and also proceeds from the redemption of preferences (which is a return of capital).

My guess for the preference shares is that there's some rental guarantees whenever LMIR buys some indo malls which winds down over time, hence the preference shares
(which pays a fixed coupon) which redeems over time (since the guarantees do not last forever).

So this is just due to the structure of the trust and nothing to do with leasehold/freehold.

Feel free to correct.

[DCF]

In my view, all these are relatively minor. The major issue is - all their loans are in singapore $, while the assets and income are in IDR. SO over the years, and at least in the near future, where IDR is facing weakness with sing$ over weak oil price and need for domestic overspend, the earning and assets will drop in sing$. The domestic property rise is not enough to compensate for this. Have highlighted this several times to the board and the management, and they always replied that IDR interest is very high and does support the yield needed for the trust, and it is impossible to get sing$ rental from many retails shops. So they will stuck in this situation for foreseeable future. Hence they are trading below NAV, and the yield is high. Overall, I think it is possible to get higher overall return from other stocks.

[ghchua]

Previously, it was even worse as they did not even hedge their distribution back to Sing$, resulting in loss of forex in their distribution income. At least now it is not so bad.

The asset-liability currency mismatch is going to stay and investors in this trust will have to live with it.

Hopefully, positive rental reversion in their portfolio and full-year rental income contribution from the addition of Lippo Mall Kemang this year in IDR will be able to offset the currency risk.

[DCF]

Previously, it was even worse as they did not even hedge their distribution back to Sing$, resulting in loss of forex in their distribution income. At least now it is not so bad.

The asset-liability currency mismatch is going to stay and investors in this trust will have to live with it.

Hopefully, positive rental reversion in their portfolio and full-year rental income contribution from the addition of Lippo Mall Kemang this year in IDR will be able to offset the currency risk.

Actually, mall kemang acquisition make it worst. It is sitting on the mismatch problem and makes it larger, with more mismatch. This apples to all future purchases.

Also, the management is in such a hurry that they placed out share to private investors at 34 cents, diluting the existing shareholders - a indication that management is not placing unit holder interest as their first priority.