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LMIR: 2Q 2013 DPU 0.93c.

Thursday, August 1, 2013

LMIR has delivered stellar results! I am very pleased that its DPU has improved to 0.93c in 2Q 2013. This is 4.5% higher, quarter on quarter. An annualised yield of 3.72c gives us a distribution yield of 7.44% which beats what is offered by retail S-REITs in Singapore including the recently listed SPH REIT.

If I were to invest in a REIT, it should offer me a distribution yield like this. If it should offer me a distribution yield similar to the dividend yield SPH could give me, I won't feel compelled to invest in the REIT.


I also like the fact that the REIT is trading at below its NAV of 57c and that it has a relatively low gearing level of 24.2%.

Can we expect a higher DPU in future? With a new CEO at the helm, the REIT seems to be doing better, achieving  about 15% in rental reversions for expiring leases. Having 8% more leases in its portfolio expiring this year, I certainly hope to see more positive rental reversions. This will marginally bump up DPU by at least 1%, assuming a 15% rental reversion.

There is also a vacancy rate of almost 5%. So, there is space to fill and, proportionally, if we could make a simplistic assumption, we could see a 5% increase in DPU if full occupancy can be achieved with new tenants paying the average rate psf.

Then, there is the matter of debt maturity. Roughly a third of LMIR's debt is due next year in June. I can only hope that they will be able to borrow at a lower rate. If they are able to do this, of course, this should result in higher distributable income.

All in all, rather pleased.


Related posts:
1. LMIR: DPU improved 20%
2. SPH or SPH REIT?

See 2Q 2013 results presentation: here.

24 comments:

yeh said...

So good to buy now?

AK71 said...

Hi yeh,

You are a regular reader of my blog. I think you know what my answer will be. LOL.

Numberator said...

i think ak will say:
if u think the yield is enough then buy! lolx am i right

Capricon said...

AK,
Comparing to Sabana which has a yield of 8.2%, Sabana is a better deal. Except it is above NAV.

Personally I am skeptical about local retail REIT, in my opinion it is saturated.

Capricorn.

AK71 said...

Hi Numberator,

Indeed, one thing we must know is whether we are being compensated sufficiently by the investment.

If we are happy with the yield and if the rest of the numbers look good, we have a green light.

We must know what is our motivation for being invested too, of course.

For example, I have a pyramid of investments and my motivation for being invested at different levels of the pyramid is different. :)

AK71 said...

Hi Capricorn,

I like Sabana REIT but we cannot really compare it with LMIR. They are holding different types of properties. Of course, they are also in different countries.

Sabana REIT should continue to deliver an attractive yield but I have blogged about being worried on how it might be impacted by the large increase in industrial space come 2015-2016.

LMIR owns shopping malls in a country where consumption is 60% of GDP and where there is a shortage of organised shopping space. Indonesia is almost recession proof.

I was unhappy with the performance of LMIR under the previous CEO as I thought LMIR could have done much better. Now, it seems that things are looking up. :)

sillyinvestor said...

hi AK,

Am vested in Lippo too, although I am not those faithful investor, I went in and out of it for various reasons. When they first increase gearing to buy the 4 malls, but did not lead to increase in DPU, I felt the previous CEO take us for a ride, and I exited.
When the acquisitions start to bear fruits in the last quarter, and coincide with the bashing of reits due to Bernake tapering announcement, I thought it might be a good time to enter.
I am happy with the results too, but to put the whole picture in perspective, I felt we need to prepare for rights issue, esp. for Lippo.
Below is what I wrote for another forum nextinsight:

Lippo mall reits has a interesting business,their sponsor Lippo is fast expanding into the mall business and have 31 malls and another 12 (iirc)in the pipeline. They also have a asset light strategy to gain recurring income from managing property.

Lippo mall has 1.75 billion assets and aim to be have a 4 billion assets over the next few years, while the strong pipeline of malls from sponsor, that is definitely attainable, the question is how to finance these acquisitions.

Lippo mall reits is not rated, and have a gearing of 24% over a cap of 35%, there is not much ammo for acquisition based on debt solely, so it should be a hybrid of debts and rights to fund future acquisitions.

The good news is, they have room to grow organically, not all malls are at above 90% occupancy and hopefully there will be positive rental revision if their malls can command a prenium(PArent Lippo is in a market leader position)

The key risk is, Lippo mall sometime price the rights at a hefty discount, but with the new CEO Alvin cheng who has a rather good record at PST (although he is not shy from fund raising), we hope the new management is more sentitive to shareholders.

One need to factor in the currency risk too, but their record of hedging that risk is so far very good.

As Lippo debts are 90% fixed, interest rate hike will not impact the reits over the next few years, so any drastic drop in price due to the tapering madness, might be a good time to accumulate.

Sorry to bored you with my long post.

sillyinvestor said...

Oh sorry,
cannot stand myself not giving the full picture and being scatterhead!

Another risk, investors should be aware. Its malls are valued at indonesia rupiah, so if the rupiah drop drastically, the valuation of malls will be affected and there is no way they can hedge this part of the equation.

When valuation drop, gearing can increase without borrowing a single cent more.

Sorry to sound like a party spoiler, I believe taking care of risks first than returns. But at more than 7.5% yield, I am happy with the risk-reward compensation thus far!! Yea!

wirbelwind said...

Ahhh I am glad that your fear of lower distribution due to acquisition of lower yielding property did not realise! :D

MrNg said...

I almost bought Sabana and cambridge, but the URA data industrial vacancy hold me back

http://sillyinvestor.files.wordpress.com/2013/08/untitled.png

AK71 said...

Hi silly investor,

Thank you very much for sharing a very good analysis on LMIR. I am sure everyone here appreciates it.

I sold off more than 40% of my position in LMIR for very much the same reason you did. It has stayed that way since. I am a lazy investor. ;)

If LMIR should have a rights issue, I am ready. ;)

AK71 said...

Hi wirbelwind,

Well, it did perform below expectations for a while. Anyway, all's well that ends well. ;)

AK71 said...

Hi silly investor,

Well, although the big picture is important, we also want to use a bottom up approach.

Some companies will continue to do better than others despite a downturn, for example.

In my recent blog post on Sabana REIT, I shared my view on why it should continue to deliver a relatively attractive yield. Worst case scenario? 7.2% at current price?

Of course, you are right to be cautious. :)

Gary said...

LMIR has done better for this quarter! =))

Gary said...

LMIR DPU has fared better! Nice! =)

opal said...

With rupiah doing badly, I am not optimistic abiut the near term dpu.
Having said that, I will continue to hold on to what I have and will buy more if share price drops significantly. :)

AK71 said...

Hi opal,

I believe that the 100% currency hedge is still in force. So, I am not too worried about income distributions in S$ terms. :)

opal said...

Not sure how long they hedge it. Let me try digging old anmouncents :)

opal said...

I can't find the info but I wrote to them. I hope they will reply.

AK71 said...

Hi opal,

Looking forward to you sharing their reply here with us. Thanks. :)

opal said...

Reply from their IR
----//-------

Dear Shareholder

In response to your query, we wish to inform that LMIR Trust hedges its cash flow in Indonesian Rupiah on a quarterly basis.

Thanks and regards

LMIRT IR

AK71 said...

Hi opal,

Good to have confirmation.

Thanks for sharing this. :)

opal said...

Let's monitor the impact of rupiah a few quarters from now.
Keeping some spare money to load more :)

AK71 said...

Hi opal,

Indeed, cheap could get cheaper. ;)

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