Wednesday, November 6, 2013

LMIR results review-- A mix bag



LMIR report its Q3 results

The headline comparison of results from a year ago is misleading, since the acquisitions of new malls contribute to income only from Q42012.

QoQ DPU actually fall.

Operational wise, there was disappointment. Although overall occupancy held stable, and there are positive rental revision, the impact on DPU is still poor due to currency weakness.

Pluit Village, the biggest mall under LMIR actually has a slight fall in occupancy after carerfour move in. Occupancy rate is moving too slowly, beside carrerfour, they seem to have difficulty filling occupancy.

Medan Plaza did well, but the next 2 biggest malls The Plaza Semanggi and Sun plaza actually report a fall in occupancy.

Given the strong consumer spending in Indonesia and the influx of western brands trying to get into indonesia, such operating results mean weak competitiveness.

 

So, am I throwing in the towel?

No, there are still a few things going for it.

1) Growth by acquisitions, there are 15 malls whereby LMIR has a first right of refusal from sponsor. Gearing is at 28%, and most properties are unencumbered, they will most probably issue rights to fund the acquisition of malls

2) Q3 show the most volatile period of IDR depreciation and record the lowest of IDR exchange to SGD, yet DPU is just mildly impacted.

3) When the 2014 debt get refinanced by the issue of MTN notes, interest rate hike risk will not be significant till 2015, since the MTN notes are secured at comparable rate as the bank rate of 4% that will expire in 2014

4) Given status quo, yield is still attractive at 7.6% at current price. Reasonable enough given the weakness of IDR and one of their malls are going through AEI.

In conclusion, LMIR pass the currency stress test, but occupancy rate will be closely watch over the next few quarters.

 

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