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Shopping for Higher Distributions at Lippo Malls Indonesia Retail Trust’s 2013 Results

Lippo Malls Indonesia Retail Trust (SGX: D5IU) is the only real estate investment trust listed in Singapore that focuses on retail malls in Indonesia.

It’s linked to the sprawling Indonesian conglomerate, the Lippo Group, and currently owns 16 malls, mainly in the Indonesian islands of Java and Sumatra.

The REIT had released its latest full year earnings yesterday evening. Let’s see how it fared.

Performance for the year

For the 12 months ended 31 Dec 2013, the trust was able to improve its gross rental income by 16.5% from S$131 million a year ago to S$153 million. Distributable income grew roughly in-line with its rental income and increased by 13.9% to S$73 million.

However, due to an increase in the number of units outstanding, annual distributions per unit for the REIT only managed to grow by 10.2% to 3.25 Singapore cents. This happened despite the weakening Indonesian rupiah, which depreciated by 15.4% against the Singapore Dollar in the last quarter of 2013.

The occupancy rate for the REIT’s malls is around 95% at the end of 2013 with positive rental reversion – the adjustment of rents according to prevailing market conditions – of 11.1%.

Turning to the REITs’ balance sheet, it has weakened quite considerably as its gearing level increased to 34.3% from 24.5% a year ago. One factor was the increase in total debt from S$473 million to S$623 million but there was also another culprit: the monetary value of the REITs’ non-current assets had dropped from S$1.76 billion to S$1.42 billion, mainly due to the weakening Indonesian rupiah. Consequently, Lippo Malls’ net asset value per unit dropped from S$0.56 to S$0.41.

Looking forward

The REIT’s management is still optimistic about the prospects of the trust. The supply of retail space in the Greater Jakarta region is being limited by the continuous shopping centre moratorium first issued by the previous Jakarta Governor Fauzi Bowo and thus bodes well for existing mall owners.

In addition, consumer spending is “expected to see an upward surge” during Indonesia’s election year in 2014, according to the REIT. The REIT goes on to add that Indonesia also has favourable demographics such as the “megatrend of urbanization” and the long term growth of the middle class in the country which can both help buoy its economy.

A risk to the trust?

The main risk the trust will likely continue facing would be currency issues. For instance, in the fourth quarter of 2013, Lippo Malls’ distribution per unit dropped 24.3% mainly because of the depreciation of the rupiah. If Indonesia’s currency would remain weak or even worsen, that would place considerable downward pressure on the REIT’s distributions, thereby affecting the yields that unit holders might see in the future.

LippoMalls Indonesia Retail Trust’s units are selling at S$0.405 a pop, giving it a distribution yield of 8% and a price-to-book ratio just shy of 1.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.