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LMIR: More acquisitions and lesser DPU again.

Wednesday, October 24, 2012


The latest acquisitions of Pejaten Village and Binjai Supermall will further reduce DPU.

Of so many REITs I am vested in, LMIR is one which has constantly disappointed in more ways than one.

The management has listed the advantages of acquiring these malls and they sound like a rehash from their equally distasteful purchase of 4 malls recently:

1. Acquisitions are at a discount to NAV.
2. Enhance earnings of the Trust.
3. Properties are of good quality.
4. Increase economies of scale in operation and marketing.
5. Minimise concentration risk.

The price tag for the purchase of the two malls: $126.5m
NPI of the two malls: $7.0m
NPI yield: 5.53%

Just like its recent purchase of 4 malls, these acquisitions are not NPI yield accretive. NPI yield of the REIT's portfolio is being gradually diluted with these overpriced purchases.

It does not matter that purchases are at a discount to valuation. They are still too expensive if ordinary unit holders are getting less income even as the REIT's asset base grows! If there is nothing worth buying, don't buy anything. Doesn't sound too difficult or does it?

The primary beneficiary here is the REIT's manager as they will be paid an Acquisition Fee equal to 1% of the purchase price which works out to be about $1.3m!

I think Ms. Viven Sitiabudi should consider retiring as CEO.

Read announcement: here.

Related post:
LMIR: More benefits from acquiring 4 malls?

22 comments:

Unknown said...

Hi AK71

As shareholders, what can we do to discourage such activities from the trust? Can it be only done through AGM?

Sheng Shi

B said...

Hi AK

How are they going to finance these 2 new acquisitions? Don't the DPU will increase with increasing revenue per se once these malls are in operation mode?

opal said...

Let's hope that the management look at ways to maximise the yield, such as optimise tenant mix, redevelop /reposition the mall etc

capitaland seems to be quite good in mall management.

Poh Soon said...

Sorry for being stupid here.

I am wondering, why the purchase will reduce the DPU?

Say, the REIT currently earn x mil.

Unless the new purchase generate -ve income or new unit being issued due to the purchase (y) and y x cuurent DPU > the profit generated out of the new purchase, else the DPU should rightfully increase. Isn't it?

AK71 said...

Hi Sheng Shi,

Retail investors are rather powerless really. We could voice our displeasure at AGMs but can we change the way things are done?

I have always wondered why the CEO has been there for years while the CFOs never seem to last very long...

AK71 said...

Hi B,

More debt, I believe.

The Manager proposes to finance the Pejaten Village Acquisition and the Binjai Supermall Acquisition (the “Proposed Acquisitions”) with:

(i) the proceeds raised from the issuance of the S$200,000,000 4.88% Notes due 2015 and S$50,000,000 5.875% Notes due 2017 (collectively, the “Notes”) pursuant to the S$750,000,000 Guaranteed Euro Medium Term Note Programme established by LMIRT Capital Pte. Ltd. (a wholly-owned subsidiary of LMIR Trust) (the “EMTN Programme”), as announced by the Manager on 26 June 2012;

(ii) the issuance of new notes under the EMTN Programme;

(iii) new loan facilities to be entered into; and/or

(iii) internal cash reserves and working capital of LMIR Trust.


As you can see, the cost of debt is almost as high as the NPI yield of the two properties combined.

Add the new units to be issued as Acquisition Fee to the manager and we have nothing left for unit holders.

DPU stands for "distribution per unit". So, if distributable income increases but the number of units increases by the same proportion or more, DPU is not going to increase.

AK71 said...

Hi opal,

Yes, we can only hope for the best. It is a loss to unit holders that Mapletree exited the REIT's management. Their partnership in the REIT was one of the early reasons for me to be vested.

AK71 said...

Hi Poh Soon,

Total distributable income could increase but DPU might not. It depends on whether the increase in distributable income is greater or lesser than the increase in the number of units in issue. :)

OT83 said...

Hi AK,

Any plan to divest your units in lippo?

AK71 said...

Hi OT,

Long time no hear. :)

Yes, I think a partial divestment could be a good idea. See if it retests the recent high which should be the immediate resistance.

OT83 said...

Hi AK,

Been too busy with work. No time to go bully bear, blog, or do other things.

How have you been? :)

AK71 said...

Hi OT,

Busy with work is good. You know what they say about "idle hands". ;)

I am good. Trying to take things easy and not worry too much. :)

Howyuan said...

Lippo malls controlled by Riadys right? Why do I have a feeling such assets offloading are related to their F&N plan?

Ah John said...

Hi AK, they use debt to pay for these acquisition, so no more new unit issued, am I right?

Ray said...

Hi AK,

Long time no see :)
hope everything is going well for you (not everything coz obviously LMIR has been disappointing ;p )

LMIR has been one of my best investment as the price rose quite a bit, maybe its time to divest and get some cash of the table? hmm

AK71 said...

Hi Howyuan,

If I remember correctly, the malls being purchased are not owned by Lippo though. So, I don't see how it helps. Hmmm...

AK71 said...

Hi Ah John,

There is no mention of a rights issue or share placement.

However, new units will be issued to pay the Acquisition Fee due to the managers of the Trust.

AK71 said...

Hi Ray,

Long time no hear. Hope you are doing well too. :)

Yes, I suppose this is one instance where locking in some capital gains could be a good idea as the investment has become a weaker one for income.

lzyData said...

It's quite hard for individual investors to change management strategy, so I am also curious about why AK71 just doesn't divest LMIR if there are better opportunities elsewhere.

Howyuan said...

Hi AK, i must have messed up news again. Haha..

And my sell queue expired just like that....

AK71 said...

Hi Izydata,

Actually, I did divest some and what is left is part of my core investments for income.

S-REITs are no longer cheap and a pertinent question would be what are "better" investments?

I like to buy undervalued shares and I have channelled some funds to a few non-REITs which pay moderate dividends and will hopefully deliver good capital gains. However, I am primarily investing for income and stay cautious with such investments.

Should I reduce my investment in LMIR even further? Well, I might if I have other investments I want to put some money in. :)

AK71 said...

Hi Howyuan,

Hey, I miss things sometimes too. We retail investors have to keep a look out for each other. ;)

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