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LMIR: 1Q 2011 results.

Thursday, April 28, 2011


LMIR is one of my long time investments. My only grouse is with its losses which stem from foreign exchange forward contracts. In 1Q 2011, it lost $2.1m from these contracts. Some degree of hedging is necessary, I believe, but in an environment which has seen the Indonesian economy and its currency strengthening quarter after quarter, 100% hedging is unnecessary. Distributable income could have been almost 20% higher if not for these contracts.

DPU: 1.17c
Payment date: 31 May.

Gearing: 10%.
NAV/unit: 86c.

See presentation slides here.

Related post:
LMIR: 4Q FY2010 results.

6 comments:

Hwang said...

i owned a small position at 0.475 last time. good to buy more? hmm...

AK71 said...

Hi Hwang,

Although this REIT is trading at a huge discount to NAV and it has very low gearing of only 10%, at the current price of 56c a unit and an annualised distribution yield of 8.36%, I believe that it is almost fairly valued.

Fair value would be about 58.5c a unit which would give us a distribution yield of about 8%.

Of course, we could have catalysts in the form of acquisitions from its sponsor, the Lippo Group, in future which could bump up distributable income.

With gearing at 10%, it is also unlikely that the REIT would have to issue rights to fund acquisitions. If this were to happen, then, buying at the current price could be a steal.

Your call. ;)

WK said...

Yea.. they are not like first where rentals are in sgd....

that is a concern for them if sgd keeps strengthening...

AK71 said...

Hi WK,

If the S$ keeps strengthening against the Rupiah significantly, then, the management would have done the right thing to stay 100% hedged.

However, the Rupiah is not the US$ or the Pound Sterling. The Rupiah is the currency of an economy that, together with China and India, did not go into a recession during the last financial crisis.

I have questioned the need to be 100% hedged for quite a while now and one wonders if the past (short lived) CFOs of the REIT had the same question.

left_ray said...

Revenue increase 40% a year ago but distribution is less. My goodness. They continue to feel right about their strategy. Lippo also own First REIT. Why the difference?

AK71 said...

Hi left_ray,

LMIR and First REIT have different managements. LMIR collects its rent in Rupiah while First REIT collects its rent in S$. ;)

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