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LMIR: Circular to unitholders.

Wednesday, October 5, 2011

Two days ago, LMIR issued to unitholders a circular regarding the EGM to be held on 20 Oct with regards to the proposed acquisitions of Pluit Village and Medan Fair as well as the proposed 1 for 1 rights issue.

The management provided two sets of numbers, one which looks at FY2010 and another looks at 6M 2011. I would like to be a bit creative with the numbers to determine if LMIR is worth buying into at today's closing price of 45c per unit.

FY2010 had a DPU of 4.44c. If the DPU were to be replicated in FY2011, we would have a distribution yield of 9.87% at today's closing price of 45c per unit.

Taking into consideration the proposed acquisitions and rights issue, the management arrived at a pro forma DPU of 3.54c. At 45c, the TERP (theoretical ex-rights price) would be 45c+31c divided by 2 = 38c. This would provide us with a pro forma distribution yield of 9.32%. Distribution yield accretive? I think not.

More relevant perhaps is to use more recent numbers provided for 6M 2011. This gives a half year DPU of 2.26c which translates to a distribution yield of 10.04% based on today's closing price of 45c per unit.

Taking into consideration the proposed acquisitions and rights issue, the management arrived at a pro forma half year DPU of  1.63c. At the TERP of 38c, we would get a pro forma distribution yield of 8.58%. Again, is this distribution yield accretive? Clearly no.

So, will I subscribe to the rights issue? Although it is not distribution yield accretive, I will subscribe to the rights issue for two reasons:

1. The even lower gearing, post rights, of the REIT will allow more acquistions in future to be funded solely by debt. Another rights issue soon after this is unlikely. Therefore, we are likely to see DPU increase and distribution yield improve, everything else remaining equal. Very likely, this exercise will pave the way for future distribution yield accretion.

2. With a TERP of 38c, the pro forma distribution yield is estimated at 8.58% (using 6M 2011's numbers). This is definitely still very attractive considering what our money will make in a one year S$ fixed deposit now.

For anyone who is investing for income and who would be happy with a distribution yield of 8.5%, buying into LMIR at today's closing price of 45c is a viable option.

Read circular here.

Related post:
LMIR: Will I subscribe to the rights issue?


Marti said...

I'll subscribe too, but will I vote for it? That is an entirely different question.

AK71 said...

Hi Marti,

Yes, I know what you mean. If it has to be done, then, it has to be done.

Sandy said...

Following questions should be asked to the management.

1) How can they stop loosing money in hedging.

2) How come their DPU fluctuates so much quarter on Quarter and generally on a reducing trend ?

3) What happened to the millions of dollars of bad debts ( from a vendor) a few years back.

4) why there is no change in leadership despite dismal performance of the REIT.

5) At what price this share offer could be accretive to the current investors and why did not set that price ?

6) Why the financial impact on the trust is so negative after taking over direct property management services.

AK71 said...

Hi Sandy,

Very pertinent questions. I am curious as to how they would answer. My take:

1. I believe that a 50% hedge instead of 100% over the last 2 years would have improved the DPU to unitholders by at least 10% easily.

2. This could do with the foreign exchange forward contracts. A stronger Rupiah actually does not translate into a higher DPU in S$ terms because of these contracts.

3. Bad debts, ah, I have forgotten about this.

4. The CEO has been there forever while the CFOs don't seem to last very long in the job....

5. A much lower price for the rights issue at under 20c could make the whole exercise distribution yield accretive. However, this would mean having to increase the amount of debt they have to take on. Might as well have a smaller rights issue (e.g. 1 for 3) and take on more debt in the first instance.

6. This, I can only wonder.

Sandy said...

HI AK47 for more than 8.5% yield have you analyzed Ascendas India REIT. The manager is one of the best in industry and have a great parentage compared to LMIR?

Ascendas ( SIngapore REIT) is one of the best ones and I am seeing Ascendas India is following the same principles.

What's your take?

AK71 said...

Hi Sandy,

I am not sure about India as I have not visited the country before and from what I read in the media, it seems that the country is in a mess.

I am more comfortable investing in Indonesia.

Of course, this is not saying anything about Ascendas India REIT. It could be a great investment. ;)

SnOOpy168 said...

i will subscribe and round up too. Still am unsure if I want to cheong excess rights like we did for First.

AK71 said...

Hi SnOOpy168,

If we are subscribing to the rights issue, it would make sense to apply for excess rights as well, imo. :)

Hwang said...

Out of curiosity, LMIR and First REIT both have the same CEO and manager aren't they. So why the huge difference?

AK71 said...

Hi Hwang,

They have the same sponsor, Lippo Group. That's the only similarity.

Hwang said...

Really? i thought i saw the same name and face as the CEO somewhere before. Hmm, must be dreaming then.

AK71 said...

Hi Hwang,

At the most basic, LMIR's CEO is a woman and First REIT's CEO is a man. ;p

khwy said...

Hi Ak47, is it the hard truth that the small investors must suffer the merciless decision of the BB.
Your blogs has good followers, if we can spread the awareness that we can vote NO to the resolutions, the Rights issue might not be the sure thing.Be united we can be a force.
The sponsor promise abstentions from voting.

AK71 said...

Hi khwy,

I don't know if my blog has that wide a reach. I guess I can only depend on readers to continue spreading the word about my blog.

How many readers are unitholders of LMIR? How many % of the total units in issue do they hold? It must be substantial enough to make an impact.

It is good that the sponsor will abstain from voting. They want to show that they are partners and not masters, willing to listen to minority unitholders.

khwy said...

Hi AK71
The sponsor/management know very well the resolutions will disadvantage the small investors.By voting NO,the sum of all might not be enough to overturn the motions,but at least we all sent a clear message to the management that we are very unhappy,don't mess with us.The government is encouraging REIT investment,it is not good if REIT management take us for a ride.
I urge even for those intent to subscribe for the Rights to vote NO to the Resolutions, it is better for you.
On another note,I have been using Alkaline water for the past two years. It taste good and is good for my Eczema.
Best regards, khwy.

AK71 said...

Hi khwy,

I suppose you will be attending the EGM? Unfortunately, I won't be able to attend due to another commitment (aka work). I guess it would be an interesting EGM just seeing how unitholders might react. ;)

As for alkaline water, I just filled up free of charge at the gym in the evening. Free, better. Haha.. So, it helps your skin condition? I guess I should keep drinking it then. :)

khwy said...

Hi Ak71
Yes, I will be there.
But limited powder, only 300+ lots together with proxy.
Wish us luck.
My wish is more able to show up to leave an impression with the management.

AK71 said...

Hi khwy,

You have much more fire power than me in LMIR then. This is not a big investment for me. :)

Have fun at the EGM. ;)

hydrogenperoxide said...

Was thinking of going in a few and subscribe to the rights, but after asking my aunt about his opinion.
P.S. she stay very near Pluit Village, and she told me the mall really cmi.. And actually Medan Fair Plaza also doesn't fare very well in my opinion, not much business except for the Carrefour at the bottom 2 storeys and Matahari Department store on the third floor.. Haizz, I think I should just wait longer.. hahahaha...

AK71 said...

Hi pero,

Thanks for sharing another first hand account. :)

Seems like a bad deal. :(

SnOOpy168 said...

I am still pondering if I should just take up the rights offer without much excess.

Crunch some numbers with me, based on today's closing price, please...

Like CapitaLand Mall, I also shake my head when I visited a few of them in SGP. Good finishing but where is the crowds and with many shops with the sign "For Lease".

For LMIR - i think I did visited a few when I was in Jakarta. Seems ok. but as I am not a shopping person, I can't tell if the crowds are there for free A/C or really buying.

AK71 said...

Hi SnOOpy168,

I will be taking up my full allotment of rights and will also be applying for excess rights which, at 31c, is just too cheap to ignore. ;)

I am not vested in CMT, which is what I think you are referring to. Which malls did you visit in Singapore to give you such a negative impression?

SnOOpy168 said...

Can trade in the rights till 18 Nov.

Will take up the Rights plus some excess.

Would be fun to know whats the % of excess that we managed to grab.

Huat ah....

AK71 said...

Hi SnOOpy168,

Yes! Huat ah! :)

SnOOpy168 said...

Results is out today...

Excesses :
Applied : 100%
Allocated : 84%

Not a lot compared to AK's warehouse of stocks. But I am contented for the time being.

For the fun of it, with more data, any guru liked to try to make a stats model out of this ?

Huat ah...

AK71 said...

Hi Snoopy168,

I believe the excess rights allocation favours smaller unitholders. This was the case with First REIT's rights issue too.

The excess rights alloted to me represent 17.2% of my total investment in the REIT. This is a far cry from your 84%.

Congratulations. :)

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