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LMIR: DPU reduced 20%.

Thursday, July 29, 2010

LMIR announced a DPU of 1.04c payable on 27 August 2010.  This is lower than the 1.2c paid in the last quarter. This is due to a higher realised loss on the foreign exchange forward contract. This reduced the funds available for distribution from S$13.9m in 2Q2009 to S$11.2m in 2Q2010.  So, although the net property income increased 17.1% year on year, DPU has reduced 20% year on year from 1.3c to 1.04c! 

I was under the impression that a foreign exchange forward contract is a hedge which would smooth out any currency fluctuations to help deliver a steady level of funds available for distribution, everything else remaining constant.  It seems that I was mistaken.

The issue that bothers me now is that the management has no intention of reviewing its practice, it seems: "Despite the realised loss in the current quarter, the Trust has entered into the foreign exchange forward contracts as a prudent measure to mitigate its exposure to fluctuations of income denominated in the IDR". See press release here.

Therefore, I would hold off plans to increase exposure to LMIR on possible future price weakness.

Technically, LMIR has been on a uptrend since hitting a low of 42c on 25 May. A combination of its uptrend support and the candlestick supports shows immediate support to be at 48.5c in the next session.


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