LMRT - An operation mystery solved

An short recap of operation numbers and my thoughts:

Lippo DPU falls to 0.56 cents

It is due to several results
1) currency weakness affecting revenue conversion back to S$
2) Some one off finance expenses due to the MTN notes which was repayed in Q1

I am not overly concerned with the above reasons, because 1) while valid is not something that company can control, 2) should fall to more reasonable level for Q1 onwards, when gearing fall back to 26%.

I am more concerned about its operation and is rather puzzled with the following:

Operating wise, occupancy rate is stable at 95% overall, NLA has a small 1% increase due to completion of AEI, from 719695 m2 to 725601 m2. It is still having positive rental revision with lease renewed. SO net net gross revenue for LMRT in IDR dollars should be stable or increasing.

YET, it falls from 326,105 million IDR in Q3 to 315065 million IDR in Q4

How is this possible? Any impact on revenue due to AEI should not contribute to a 5% decrease in total revenue, since Ekakokasari mall which is going through AEI has NLA of only 26000 m2

I send an email to IR and this below is our correspondence:

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I refer to your Q4 results.

The gross revenue in IDR has fallen from 326,105 million in Q3 to 315, 065 in Q4 million when your occupancy rate is steady at 95% with positive rental revision for the past few quarters, can you explained why?

Thank you for your kind attention

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The reply:

Thank you for your email. To answer your query, there are at least several reasons:

1. Generally speaking, Q3 revenue is higher than 4Q due to Indonesian Lebaran Festivals (a nationwide festival throughout the whole month of Aug) which stimulates spending nationwide.

2. The MNK operating agreement, whereby we outsource mall's operation to third party MNK and only collect 77% of the net operating income. As operating expenses were finalized in 4Q, the net operating income was seasonably lower than first three quarters.

3. Positive rental reversion is good indicator but it only applies to the renewal leases, so that it cannot represent the overall income level.

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Further questions:

1. Generally speaking, Q3 revenue is higher than 4Q due to Indonesian Lebaran Festivals (a nationwide festival throughout the whole month of Aug) which stimulates spending nationwide.

Isn't rental income, or rent collected from tenants fixed? Do you mean you have a clause that allow rental increase or decrease due to the sales of tenants?

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IR reply:

There are certain proportion of GTO tenants in every shopping centre whereby GTO rent is linked with tenants' sales volume. And this is only one of the reasons that can explain the drop in our revenue when you compare QoQ.

Hope the above clarify your query.

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My thoughts:

The reasons offered seem reasonable, and I accept them. But its does mean revenue is going to be a bit volatile, depending on how well the malls are doing. A longer tracking of their IDR revenue is needed to see if competitiveness is lost.