PRICE as of 2 Aug 2013 SGD 0.51
PRICE TARGET SGD 0.51
Looking for acquisitions in 2H13
Lippo Malls Indonesia Retail Trust’s 2Q13 DPU was 8% above our estimate because of one-off payments.
Performance of the six assets acquired in 2012 is improving.
LMRT could seek further inorganic growth in 2H13. We expect sizeable assets to be part-financed by equity.
We maintain our In-Line rating due to limited upside to our revised SGD 0.51 price target. Downside risks could come from a slowing Indonesian economy.
2Q13 DPU 8% above our estimate. LMRT’s 2Q13 DPU of S¢ 0.93, up 4% q/q, beat our estimate because of SGD 1.9mn of vendor payments on recently acquired assets due to prolonged vacancy and/or delay in the completion of asset enhancements.
Improving portfolio performance. Portfolio performance improved, with retail mall occupancy rising 160bps to 94.4% as of 30 June from 92.8% three months ago. Of the 16 retail malls, 13 enjoyed occupancy of 90% or more. Management disclosed that the six new assets acquired in 2012 for SGD 307mn registered a 7% NPI yield in 2Q13 (versus 8.6% for the older assets) as occupancy improved.
Acquisitions likely in 2H13: LMRT aims to grow its portfolio size to SGD 4bn in the next three to five years from SGD 1.77bn currently via sponsor and third-party assets. At the analyst call, management noted that it was seeking acquisitions in 2H13. LMRT is leveraged at 24.2% as of 30 June 2013, close to its preferred leverage range of 25-30%. We expect sizeable assets to be part-financed by equity. We assume SGD 350mn of acquisitions using 65-35 debt-equity funding.
Maintain In-Line rating on valuations: We continue to like LMRT’s lower beta and high-yield exposure to Indonesian consumption. We adjust our DPU estimates by -1% to +4%. We review our DDM-derived valuation to reflect a higher risk-free rate of 3.25% (from 2.75%), with a beta of 0.9, market risk premium of 6.5% and terminal growth of 0.25%. We lower our price target to SGD 0.51 from SGD 0.53. LMRT is trading at a 7.3% 2013E yield, among the highest in the sector, and at 0.9x P/NAV. It has outperformed the sector by 6ppt in the past three months. Downside risks could come from a slowing Indonesian economy, which saw GDP grow 5.81% y/y in 2Q13 and rising inflation.
Publish date: 02/08/13