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LMIR: 1Q 2012 DPU 0.69c.

Monday, April 30, 2012

I remember saying that LMIR was too cheap to sell in December last year. It was trading at 36.5c a unit then.



I also remember saying that unitholders should be more patient after the rights issue because the REIT's DPU would bump up in time. The rather low DPU of 0.53c for 4Q 2011 would not be the norm. I estimated the norm to be a DPU of 0.815c per quarter or 3.26c per year. In fact, quarterly DPU could surprise on the upside in time.

LMIR announced a higher DPU for 1Q 2012 as expected but the quantum of 0.69c is lower than the 0.815c I estimated. Is the management taking too long to deliver the goods, post rights issue?

I have, of course, questioned the quality of the management a few times before and readers who have been following my blog from its inception would remember some scathing remarks I had made in the past.

Whatever the negativities, LMIR, with its very low gearing level of 9.2% and interest cover ratio of 13.3x, would take a fool of epic proportion to sink. Therefore, it remains, in my opinion a bullet proof REIT with plenty of room to grow.

What is worth highlighting is that any further growth is likely to be funded 100% by debt and, thus, DPU would grow, everything else remaining equal.

For anyone investing for income with a good dose of patience, investing in LMIR could be a very rewarding decision. So, is it a good time to buy into LMIR now?

Well, at last Friday's close of 42.5c, the annualised distribution yield, using 1Q 2012's DPU of 0.69c, is 6.49%. This is not attractive enough for me to add to my long position.

Assuming that the REIT would, over the course of 2012, deliver a DPU of 3.26c as per my estimates, the distribution yield would be 7.67% at the same unit price of 42.5c. This is definitely more attractive but it would mean investors must be more optimistic and place more confidence in the management to deliver. This is a judgement call.

Investors could consider adding if price should weaken to offer distribution yields upwards of 8% for a bigger margin of safety. Is this to be based on annualising 1Q 2012's DPU or the DPU I estimated, post rights? That's your call.

Related posts:
1. LMIR: Too cheap to sell.
2. LMIR: 4Q 2011 results.

See press release: here.

23 comments:

Ray said...

too expensive now. was waiting for the price to drop but didnt...
who says fishing builds patience? waiting for price of stock to drop requires more patience!

AK71 said...

Hi Ray,

I will let the fishermen amongst us answer your question. ;p

Bill said...

Hi
I would rather go for capita all at 5 percent sacrificing the 1 % just for oversea exposure

Bill said...

For 5% local reits seem safer?

Like capitamallsasia

AK71 said...

Hi Bill,

I have been vested in LMIR for years and I think it has been quite safe although I feel that it could perform a bit better. ;)

As for CMA, it is not a REIT really. :)

Howard said...

a bit disappointed that their pro-forma estimation is not working well.

share price has to drop to 34.5 for yield to go back 8%.

at current yield, suntec looks more attractive. haha...

AK71 said...

Hi Howyuan,

I am disappointed too... Underperformance seems to be the signature of this REIT.

SnOOpy168 said...

Perhaps somehow, somewhere, the crowd sensed this and flocked to 1st Reits.

*sign* why can't my LT stock picks appreciate in capital as much leh.

AK71 said...

Hi SnOOpy168,

LMIR has not done too badly in terms of capital appreciation actually especially if you bought more nil-paid rights at 2c to 5c which would mean cost price of 33c to 37c. You would still be sitting on paper gains of 13.5% to 27% based on the last done price of 42c. ;)

I will be patient with LMIR because it really has a lot of potential. It is virtually indestructable.

SnOOpy168 said...

AK

I agree with you on it's potential, having visited a few of it's JKT malls in the past. Seems to attract decent crowds and tenant mix in their well looked after properties.

I'll be patient. ^-^

AK71 said...

Hi SnOOpy168,

LMIR is full of promise and I am full of hope. ;)

Let us see if it delivers. :)

Serendib said...

At this price/yield, I think its too rich for me given the Indonesia risk and the underwhelming performance of the REIT manager

Ana said...

AK,
As the fund managers are paid based on the NAV, don't you think the manager's are not aligned with shareholders? Anna

Ah John said...

Hi, AK, I think your portfolio concentrate at REIT. Although it's real estate, you won't loss everything at the end, but what are the risks that should be seriously considered when put big bid on REIT?
Is it wise to heavily invest when dividend yield soars, eg. >15%? I mean whole market down.

Ah John said...

Hi AK, from its recent result, Net Property Income 30,857, but Distribution income is only 15,008. Not 90% pay out?

http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_D4092E44A004CDFD482579F4003572E9/$file/1Q_2012_Results_Presentation.pdf?openelement

AK71 said...

Hi Serendib,

I am definitely not adding at this time either. Just holding on to what I already have. :)

AK71 said...

Hi Ana,

That is a good point and something another reader raised a year or two ago. I agree.

We want the management and unitholders to benefit if the REIT does well. With interests aligned, we are more akin to equal partners.

Towards this end, it explains also why I have a preference for Sabana REIT. :)

AK71 said...

Hi Ah John,

If distribution yields should soar like in the global financial crisis a few years ago, I would selectively add to my long positions like I did back then. :)

What are the risks? Yes, there are risks. In fact, over dinner with a couple of friends last night, we were talking about a recent earthquake in Phuket. A large enough earthquake could send a tsunami down the Straits of Melacca. Singapore's western and southern areas could be inundated. After the triple disasters in Japan, I am no longer sanguine about natural disasters. As you might already know, I subsequently reduced my investment in Saizen REIT.

Anyway, I ramble... Barring really unforeseen circumstances, I believe we can still stay positive about S-REITs:

Staying positive on S-REITs.

Although I did use the run up in prices to sell some, I am holding on to what I would call my core investments now and these I would not sell unless prices go even higher from here.

The primary function of my core investments is to generate a meaningful passive income. Once again, I ramble...

AK71 said...

Hi Ah John,

Don't look at the NPI because they deduct financial expenses, administrative expenses and taxes from this. Distributable income is not 90% of the NPI here.

Look at the Statement of Distribution and it is clearer why distributable income is $15.008m.

hydrogenperoxide said...

AK, cannot la.. tsunami at Malacca strait would be a disaster to most of us liao le, don't even think about stock market, life first.. :P

Anyway, Singapore is protected by Sumatra island for any tsunami to happen (the tectonic plate is on the Indian ocean).

P.S. Sorry for the random rambling.. :P

P.S.S Sun Plaza (the latest purchase) is dropping their parking charge that's been affecting the business at the shopping mall.. hahahaha

AK71 said...

Hi Pero,

I hope you are right. Earthquakes in Indonesia, Singapore is still safe but earthquakes in Phuket (which is not too far north of Penang), we got to worry...

Ray said...

Hi AK,

LMIR 36.5c now.
Attractive enough for you yet? :)

AK71 said...

Hi Ray,

If LMIR persists in its underperformance, to get an 8% distribution yield, unit price has to be 35c. Will it continue to underperform? I do not know but given the management's track record, I would like to have a greater margin of safety.

I guess I am also saying this because I do not have any urgency to buy in as I already have a significant investment in the REIT. If I were not vested yet, I could initiate a small long position at 36.5c.


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