Lippo Malls REIT (LMIR)

[ForeverAlone]

seems like placement is the trend now for reits
after sabana now its lippo mall
definitely more reits placement to come, investors be careful ^^

[sentosaubin]

You are only looking at new investor point of view. To existing unitholder, of course it matters.

Existing unitholder get their "distribution (from 1 October to 21 November)" cut by 10% in one night because new unitholder enjoy a distribution from 1 October as well.

For private placement doesnt matter much if cum dividends or not example a $1.00 reit paying out 1 cent distribution. If placement at 10% discount, private investor may pay 0.90 if no entitled to the 1c payout and they would pay 91c if they are entitled for the 1c payout. In short in the placement bidding is market efficient.

I believe what Felix is trying to say is that the estimated distribution potential for Q4 has already been taken into account in the pricing of the placements.

Mathematically if one can price out the new units at a premium that covers the early dilution of Q4 distributions, existing unitholders are no better or worse off as the pricing premium will just be treated as being retained cash instead of being distributed out to existing unitholders.

Of course if there is, and how much, of this premium is encapsulated in the $0.405 price is a matter of individual judgement that cannot be authoritatively determined in the absence of a control scenario where placement is done without the accrual of the first 2 months of distributions in Q4.

No.. I think you dont understand the implication of advance distribution. Why is it that all other REITS (sabana included) pay out advance distribution while LippoMalls (seems like the only one) does not? Existing unitholder will be worse off.

Pricing is a matter of subjectivity and you can't say that it can/cannot cover the "dilution" effect. How can you even say that it can cover dividend dilution effect? As exisiting unitholder, you assume the risk by holding it from 1Oct - 21Nov, and the reward is the dividend. The one day, LippoMalls management decide that you should share your dividend from 1Oct-21Nov to new investor when new investor can enjoy 5% discount on unit price ?

Anyway, I'm looking to exit this name... What a lousy management that makes existing unitholder worse off.. Private placement has already diluted the market price, and coupled with distribution dilution, this is a big turn off. Next Distribution can easily drop 15-20%... so 0.87c/quarter..You can expect it to drop easily below 0.70c/ quarter..

[ForeverAlone]

sentosaubin

I think you are just frustrated with your investment in lippomall, calm down and you will see the clearer picture.

[ForeverAlone]

sentosaubin

I give you an extreme example
imagine if the new private investors are given $1.00 distribution instead, super way more than what the existing shareholders are getting.
are they eating away your distribution?

the answer is No
Because their placement cost will be priced much higher! maybe something like $1.41

you are not using logic but instead your emotions to think~

At the end of the day, the new private investors are NOT eating into your distribution

Its just that your stake in those assets are greatly diluted by the new placement shares.

[sentosaubin]

Let me give you another example

lets say every month is 0.3 cent distribution before private placement.
with no private placement, we should expect a 0.9c dividend for Oct-Dec. Let's say that private placement happen on 1-Dec for the sake of simplicity and diluted distribution per month becomes 0.25c.

Advance Distribution case
Existing unitholder Oct-Dec dividend = 0.3c (Oct)+ 0.3c (Nov) + 0.25c(Dec) = 0.85c
New unitholder Dec Dividend only = 0.25c for the risk they only owned from 1-Dec

For Lippo cases:
Existing unitholder Oct-Dec distribution = 0.25c (Oct)+ 0.25c (Nov) + 0.25c(Dec) = 0.75c (a reduction of 0.10c)
New unitholder Oct-Dec distribution = = 0.3c (Oct)+ 0.3c (Nov) + 0.25c(Dec) = 0.75c (an increase of 0.50c)

Are you saying that an increase of 0.50c is priced in the private placement (ie: higher price)? The answer is no, private placement is done at 40.5c (5% discount) compared to market price average of 43c

And, new unitholder cannot get 5c distribution as a deal of private placement... as the new unit is ranked pari passu..

sentosaubin

I give you an extreme example
imagine if the new private investors are given 5 cents distribution instead, way more than what the existing shareholders are getting.
are they eating away your distribution?

the answer is No
Because their placement cost will be priced much higher!

you are not using logic but instead your emotions to think~

At the end of the day, the new private investors are NOT eating into your distribution

Its just that your stake in those assets are dilution by the new placement shares.

[kichialo]

No.. I think you dont understand the implication of advance distribution. Why is it that all other REITS (sabana included) pay out advance distribution while LippoMalls (seems like the only one) does not? Existing unitholder will be worse off.

Pricing is a matter of subjectivity and you can't say that it can/cannot cover the "dilution" effect. How can you even say that it can cover dividend dilution effect? As exisiting unitholder, you assume the risk by holding it from 1Oct - 21Nov, and the reward is the dividend. The one day, LippoMalls management decide that you should share your dividend from 1Oct-21Nov to new investor when new investor can enjoy 5% discount on unit price ?

Anyway, I'm looking to exit this name... What a lousy management that makes existing unitholder worse off.. Private placement has already diluted the market price, and coupled with distribution dilution, this is a big turn off. Next Distribution can easily drop 15-20%... so 0.87c/quarter..You can expect it to drop easily below 0.70c/ quarter..

I see your point. Let me hazard a guess. Sabana's placement is to raise funds for an acquisition, where as LMRT's placement is just to raise funds. There is no accretive or additional income after the placement. By right the balance sheet will be stronger after the placement but whether it will translate to a higher market share price is questionable because of the discounted placement price of the new shares. I tend to agree with you existing unit holders are being punished under this scenario with no advanced distribution.

[Greenrookie]

Actually I kinda of agree with sentosaubin.

Me bad, didn't read the announcement properly.

Although I would not comment/write off on the whole business or management yet.

A placement without advance is definitely "unfriendly" for existing holders.

I always feel shareholders should be given the option for subscription of rights, although it is for time consuming and the take-up rate uncertain. Unless the shares are placed to strategic investors who can value-add the business, and in such case, the identity of investors should be made public.

As for without advance payment, the dilution starts earlier, not significant in terms of gain/loss of investment, but point to how management view shareholders. They do not see them as stakeholders, but simply a means for fund riasing.

[AlphaQuant]

Personally, I think this is a 'defensive' move by the Management in light of the volatile SGD/IDR rates which could easily distort its financial ratios and covenants in a flash.

It seems that the gearing rose dramatically as the property values were adjusted due to translation effect. I am curious whether will we see an increase in property valuation in 4Q 2013 by the valuers since properties are meant to be good inflation hedge ? What do buddies think ?

(Not Vested)

i agree with your view in that Mgmt is trying to shore up its balance sheets in case property values take a dump and gearing explodes - other than Lippo, Ascott Residence has also done the same thing - again it is a REIT with plenty of exposure to foreign properties (esp in the Eurozone).

I think a mall is only as good as the willingness of tenants to rent, which is only as good as the willingness of consumers to spend. So while the malls are hard assets (hence good agst inflation), a rise in rates might mean choking off credit and hence domestic consumption (hence bad for malls).

[sentosaubin]

Thanks Greenrookie

I also didnt read announcement propertly, until it hits me as to why there is no advance distribution. The purpose of placement is also questionable. Perhaps there is more than meet the eye

As other forummer pointed out, the gearing rise substantially. Eventhough Lippomalls said that the Mall Rental is quoted in SGD, how much can the tenant stomach it? with IDR depreciates 20+% in 3 month (ie: huge rental increase of 20%)....

Actually I kinda of agree with sentosaubin.

Me bad, didn't read the announcement properly.

Although I would not comment/write off on the whole business or management yet.

A placement without advance is definitely "unfriendly" for existing holders.

I always feel shareholders should be given the option for subscription of rights, although it is for time consuming and the take-up rate uncertain. Unless the shares are placed to strategic investors who can value-add the business, and in such case, the identity of investors should be made public.

As for without advance payment, the dilution starts earlier, not significant in terms of gain/loss of investment, but point to how management view shareholders. They do not see them as stakeholders, but simply a means for fund riasing.

[Greenrookie]

Personally, I think this is a 'defensive' move by the Management in light of the volatile SGD/IDR rates which could easily distort its financial ratios and covenants in a flash. While it is possible to hedge the income stream, I am not certain if it is possible to hedge the property valuation or the debt principal.

2Q 2013

Inv Properties: 1,765 million
Debt: 462 million
Cash: 143 million
Gearing: 26%

3Q 2013

Inv Properties: 1,508 million
Debt: 464 million
Cash: 127 million
Gearing: 31%

It seems that the gearing rose dramatically as the property values were adjusted due to translation effect. I am curious whether will we see an increase in property valuation in 4Q 2013 by the valuers since properties are meant to be good inflation hedge ? What do buddies think ?

(Not Vested)

IIRC, I remember seeing in the 2012 AR that valuation of properties in terms of rupiah are increasing but is lower when converted back to S$. We will need the 2013 AR to confirm if it is still the case for 2013, but in Q3 presentation, they for the first time show the rental income in Rp million, too, to highlight the impact of currency.

I see this as a prelude for future acquisition. As Mobo pointed out, but I think there will be further equity raising. As KopiKat pointed out in another thread, if debt ceiling is breached due to revaluation of properties, companies do not need to do capital raising to bring the debt level down. But they cannot acquire anymore.

They are some way away from the celing, so no need to defend, since the breach is just "academic", unless they wanted to acquire