Key Takeaways from Lippo Malls Indonesia Retail Trust’s Latest Earnings

lippo malls trust

Lippo Malls Indonesia Retail Trust (SGX: D5IU), which owns shopping malls and retail spaces in Indonesia, announced yesterday night that its gross rental increased by 4.8% year-on-year for the second quarter of 2014.

The REIT’s sponsor is PT. Lippo Karawaci Tbk, one of the largest listed property developers in Indonesia. Incidentally, PT. Lippo Karawaci also happens to be the sponsor of First Real Estate Investment Trust (SGX: AW9U), a healthcare REIT which is listed here in Singapore.

Coming back to Lippo Malls, its gross rental income grew from Rp258.3 billion a year ago to Rp266.1 billion on the back of positive rental reversions. However, due to the 22.1% depreciation of the Indonesian rupiah against the Singapore dollar, the trust suffered an 11.6% drop in gross rental income in Singapore dollar terms to S$28.8 million. Meanwhile, Lippo Malls’ net property income had declined by 17.7% to S$31.2 million.

Due to the lower net property income, the REIT’s distributable income had slumped by 18.8% to S$16.6 million after deducting finance and other costs. This translates to a distribution per unit of 0.68 Singapore cents for the latest quarter.

It is noteworthy, though, that the occupancy rate for Lippo Malls’ portfolio is still strong at 95.3%; the industry average is only 82% in comparsion.

Mr Alvin Cheng, Chief Executive Officer of the Manager of the trust, gave a few highlights on Lippo Malls’ business in the earnings announcement:

“The underlying business fundamentals remained solid, as illustrated by the growth in Gross Rental Income and high occupancy level of the malls. The portfolio performance was affected by few challenges in the past years, namely, the 22.1% depreciation [of the Indonesian Rupiah year-on-year], as well as the expiry of the Rental Guarantee from the previous owner of Pluit Village.”

As of 30 June 2014, Lippo Malls’ gearing ratio was at 28.3%, a vast improvement from the ratio of 34.3% seen at the end of last year. As a note of interest for unit-holders, all of the REIT’s outstanding borrowings now have fixed interest rates, which provide some protection for the REIT’s income from rising interest rates until it needs to refinance its borrowings. And on the refinancing front, the weighted average maturity for Lippo Malls’ borrowings stands at 2.3 years currently, with no refinancing required until next July. The REIT ended the quarter with a net asset value of S$0.41, unchanged since the end of 2013.

Regarding Lippo Malls’ future, things are looking rosier. Cheng commented:

“[t]here are clear signs of improvement in Pluit Village’s occupancy and rental income, including the opening of a new fod court, whereas the Indonesian currency has appreciated since the end of 2013.”

In addition, going forward, the trust will continue to explore its sponsor’s pipeline of quality assets in Indonesia for potential acquisition opportunities. As it stands, there are a number of factors which are helping to fuel demand for retail activity in Indonesia: 1) Higher disposable income in the country; 2) a growing consumer class; and 3) an emerging trend of lifestyle shopping malls.

Lippo Malls closed at S$0.41 on Thursday and its units have a trailing distribution yield of 6.8%.

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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 Sudhan P doesn’t own shares in any companies mentioned.