Lippo Malls Indonesia Retail Trust
PRICE as of 7 Nov 2013 SGD 0.45
PRICE TARGET SGD 0.46
After IDR depreciation, acquisitions may require more equity funding
LMRT’s 3Q13 DPU was 5% below our estimate on higher than expected interest expenses.
NAV fell 20% q/q and leverage rose 400bps due to IDR depreciation against the SGD in 3Q13.
We expect LMRT to acquire SGD 350mn worth of assets, but now assume 60% equity financing vs. 35% previously.
We maintain our In-Line rating with a revised price target of SGD 0.46 (from SGD 0.51).
3Q13 NAV impacted by forex movements. LMRT‟s 3Q13 DPU of S¢ 0.87 was 5% below our S¢ 0.92 estimate, and 3% below consensus due to higher than expected interest expenses. Retail mall occupancy was stable q/q at 94.4% as of 30 September 2013. Due to 15% IDR depreciation against the SGD over the last three months, LMRT‟s NAV fell 20% q/q to SGD 0.45/unit. As LMRT uses SGD-denominated debt, its leverage also rose to 28.2% as of 30 September, from 24.2% three months ago.
Acquisitions likely in the next three-to-six months. LMRT aims to expand its portfolio to SGD 4bn in the next three-to-five years (from SGD 1.51bn currently) via sponsor and third-party assets. During the analyst call, management said they remain on the look-out for acquisition opportunities. In October, LMRT issued SGD 150mn notes under its MTN programme, which could potentially be used to finance acquisitions or refinance debt maturing in mid- 2014. With the increase in leverage this quarter, LMRT is now close to its medium-term leverage target of 30%. As a result, we think acquisitions would need to be partially financed by equity.
Assuming higher requirements for equity. We now assume SGD 350mn worth of acquisitions using 40/60 debt/equity funding (from 65/35 previously). We also factor in a lower IDR against the SGD based on the latest Standard Chartered Research forecasts. As a result, we lower our DPU estimates by 3% to 14%. We also lower our price target by 10% to SGD 0.46 (from SGD 0.51). Our PT is DDM-derived, using a 3.25% risk-free rate, 0.9 beta, 6.5% market risk premium, and 0.25% terminal growth. We like LMRT‟s low beta and high-yield exposure to Indonesian consumption. LMRT is trading at a 7.7% 2014E yield and 0.98x P/NAV. We maintain our In-Line rating on valuations.