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LMIR: 4Q and FY2013 results.

Thursday, February 13, 2014

Exactly one year ago in 2013, I divested a big chunk of my investment in LMIR at 52.5c a unit. At the time, I said that selling at that price meant giving up a distribution yield of some 5.7%. The reason for the partial divestment was the unimpressive performance of the REIT since its rights issue.

Today, one year later, I made my first purchase in an S-REIT since the middle of 2012 as I increased my long position in LMIR, adding a quantum that is about a fifth of what I sold one year ago. So, you can say that, for various reasons, some of which have been discussed here in my blog before, I remain cautious.


At a recent lunch gathering with some friends, when asked, I said that LMIR was still not trading at a price that I would call cheap. Yes, the price I got in today was not cheap but I was looking at a prospective distribution yield of 8.6% which seemed like a fairer proposition compared to 5.7% a year ago but, everything else remaining equal, cheap would mean a 10% yield or higher. Impossible, you think?

When I remind myself that the lowest I paid for LMIR was 18.5c and that I got a huge chunk of rights at 31c, you see what I mean. Prices could plunge again for whatever reason or we could see another rights issue, again, for various reasons.

There was another reason from a FA perspective why I decided to add to my long position. When I blogged about LMIR in August last year, I said that the REIT's term loan maturing this year in June worried me but this concern was addressed when they used the proceeds from the issuance of a 3 year bond to repay the term loan a few months early. This also lowered the REIT's average cost of debt from 6% to 5.3%. A big improvement. Read it: here.


Technically, it also seems to me that the downtrend has been broken and that LMIR's unit price has been consolidating for a while. Of course, no one could tell that unit price has bottomed until after the fact but support seems to have formed at 39c. What is being formed now could be just a floor. We don't know but the momentum oscillators suggested that selling pressure had eased.

Now, the news.

LMIR released their full year results tonight. Here are some of the numbers for 4Q 2013:

DPU: 0.56c
Gearing: 34.3%
Occupancy: 95%
NAV/unit: 41c

The numbers are much weaker than expected. If we were to annualise 4Q DPU, we are looking at a vapid 5.53% distribution yield at 40.5c a unit, my buy price today.

Now, what do we do as unit holders? Press the panic button?

Taking in the bigger picture, what is affecting LMIR's performance in S$ badly is probably the weak Rupiah. However, the Rupiah will eventually bounce back. It always did in the past. In the meantime, the REIT's management will have to hedge the risk.

Looking at the REIT's numbers, it did not do too badly in terms of NPI, reducing 5.5% in S$ terms, thanks to contributions from new properties probably. What really caused DPU to reduce drastically year on year was the 37.5% increase in financial expenses related to the issuance of the MTNs. Now, if these expenses do not recur in the next quarter, then, DPU could improve by quite a bit in the same period.

The next time the REIT has to raise funds could be end of this year or early next year as a $200 million MTN matures in July 2015. So, it is very likely that DPU for the next quarter could be higher. How much higher?

All else being equal, I think that a DPU of 0.66c in the next quarter is realistic. Of course, if the management works hard at bumping up occupancy, DPU could even surprise on the upside. All this is assuming that the Rupiah stays at current levels. Even a slight strengthening of the Rupiah could provide a lift to the REIT's performance.

Of course, there is no saying how Mr. Market would react although a sell off tomorrow would be quite natural. 39c could indeed be just a floor and not the bottom. Next support could be found at 35.5c, the low of 4 June 2012.

See slides presentation: here.
See financial statement: here.

Related posts:
1. LMIR: Divested 42.5% at 52.5c.
2. LMIR: 2Q 2013 DPU 0.93c.

13 comments:

hydrogenperoxide said...

Plaza Medan Fair!! They just built a new wing with more food place.. :P
Btw, AK, to be honest, I am more attracted to put money in fixed deposit if we are investing for money and believe in rupiah.. the current interest rate for rupiah is currently about 9-10% p.a.

AK71 said...

Hi Pero,

Yes, I know what you mean but you are Indonesian. It is easy for you. :)

The last time I was in Jakarta, it wasn't easy for me to start a FD account at all. I gave up. :(

Tien Song Chuan said...

Hi AK, the market is offering Sabana $1.02 a unit. Do you think it is a good deal?

AK71 said...

Hi Tien,

At the current price, as an investment for income, I think it is a fair enough proposition. :)

See:
Sabana REIT: Am I buying or selling?

INVS 2.0 said...

If the price sinks to 35.5c, I would be inside too. :)

sillyinvestor said...

Hi AK

Like what you posted, I am also not overly concerned with the above reasons, because 1) while valid is not something that company can control, 2) should fall to more reasonable level for Q1 onwards, when gearing fall back to 26%.

I am more concerned about its operation and is rather puzzled with the following:

Operating wise, occupancy rate is stable at 95% overall, NLA has a small 1% increase due to completion of AEI, from 719695 m2 to 725601 m2. It is still having positive rental revision with lease renewed. SO net net gross revenue for LMRT in IDR dollars should be stable or increasing.

YET, it falls from 326,105 million IDR in Q3 to 315065 million IDR in Q4

How is this possible? Any impact on revenue due to AEI should not contribute to a 5% decrease in total revenue, since Ekakokasari mall which is going through AEI has NLA of only 26000 m2

Are you able to explain? I mailed the IR, but yet to get a reply

AK71 said...

Hi INVS 2.0,

At 35.5c, I think buying interest will be quite strong, barring unforeseen circumstances. :)

AK71 said...

Hi Mike,

I think you have spotted something I missed. This is one thing about blogging I like, the exchange of ideas and pokes! ;p

When you hear from the IR department, please share their response here with us. I would rather wait to hear from the horse's mouth than to hazard a guess. ;)

pearlrhythm said...

Hi AK,
Thanks for your great blog. I have been following for a while but this is my first time commenting. I was a LMIR unitholder and am waiting at the sidelines now. However, I see that there is a high risk that the rupiah could weaken further for the following reasons: "hot money" flowing back into developed economies, the very high Indonesian current account deficit and the Indonesian presidential elections later this year which do not have a strong candidate.

pearlrhythm said...

I am a rookie btw...

AK71 said...

Hi pearlrhythm,

Indeed, the Rupiah could weaken further although I feel that this would be disastrous not just for Indonesia but for Singapore as well.

Already, anecdotal evidence is that Indonesians find Singapore too expensive to visit and too expensive to invest in now.

Companies exporting to Indonesia are suffering too.

It is not in Indonesia's interest to have the Rupiah fall drastically. Do they have the will and ability to keep it from doing so?

Will have to wait and see.

Darren Lee said...

Hi,

The interest rate for rupiah FD may be high. But over the long term, the rupiah depreciates against other currencies such as the Sing dollar. When I left Jakarta towards the end of 2006, the exchange rate was about S$1 to approx Rp5,200 (if I recall correctly). Now?
Also, the properties owned by Lippo Malls are the equivalent of lease hold properties. Does anyone have a view on the risks involved on this issue?

AK71 said...

Hi Darren,

I first addressed the question on LMIR's land leases in 2011 and I dug this out for you:

"Indonesian government does lease out land. They are usually renewable leases at nominal rent.

"In BOT, the developer uses the property for an agreed length of time before handing over the property to the land owner.

"The reason why such contracts are typically renegotiated and renewed is because the land owners are not developers or managers. They would rather the status quo continue but for a fee, of course. However, this is not guaranteed.

"It would be interesting to see the fate of a BOT property in LMIR's portfolio when its contractual period comes to an end."

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