Lippo Malls Indonesia Retail Trust’s Latest Earnings: What Investors Should Know

Lippo Malls Indonesia Retail Trust (SGX: D51U) or LMIR released its fourth quarter earnings report yesterday. The reporting period was from 1 October 2014 to 31 December 2014.

LMIR is a real estate investment trust (REIT) with a portfolio of retail and retail-related properties in Indonesia. Currently, it has 17 retail malls as well as seven retail spaces within other malls.

You can catch the previous earnings report here.

Financial Highlights

Here’s a rundown on the financial figures:

  1. Gross rental income rose to S$30.1 million in the latest quarter, up 9% from the quarter a year ago. For the full financial year ended 31 December 2014 (FY2014), gross rental income was down by 6.2% over 2013 to $137 million. On a constant currency basis, gross rental income was up 5.5% compared to a year ago.
  2. Gross revenue (includes other income) was $36 million, up 6.2% from a year ago.
  3. Net property income (NPI) for the quarter rose by 5.7%. NPI for the quarter came in at S$32.9 million, compared to S$33.9 million for the same quarter a year ago. NPI for the full year was down 12.1% from a year ago. In constant currency terms, NPI was unchanged from 2013.
  4. Distribution per unit (DPU) for the quarter will be 0.71 cents, a hefty 26.8% increase from 0.56 cents in the fourth quarter last year. The REIT completes the financial year by distributing 2.76 cents per unit for the full year. This is down 15.1% compared to last year’s 3.25 cents per unit.
  5. As of 31 December 2014, the REIT had a net asset value of S$1.15 billion, with a net asset value per unit of $0.42.

Foolish investors might want to keep up an eye with the REIT’s debt profile. The debt profile may provide clues on how the REIT is funded, and its sensitivity to the interest rate environment. As of 31 December 2014:

Gearing Ratio 31.30%
Weighted Average Maturity of Debt Facilities 2.12 years
Fixed Rate Borrowings 75%
Outstanding debt $630 million

Source: LMIR’s earnings presentation; author’s calculation

At the end of the quarter, LMIR had a cost of debt between 4.25% to 5.875%, and weighted average maturity of 2.12 years. This interest rate cost is higher than most retail REITs with properties in Singapore. Of the S$630 million in debt outstanding, S$200 million becomes due in FY2015. As always, the progress in refinancing of debt is where Foolish investors should keep a watchful eye.

Operational Highlights

The overall fall in rental income was due to a reduction in rental guarantee income and the depreciation of the Indonesian rupiah.

My fellow Fool Ser Jing has pointed out before that rental support is one area to note. On the flipside, gross revenue for LMIR benefited from the addition of Lippo Mall Kemang which was acquired in the second  half of December 2014.

Another Foolish colleague, Sudhan P also noted that PT Lippo Karawaci Tbk is the sponsor for LMIR. He further noted that:

The sponsor has provided LMIR with a “right of first refusal over its retail malls to be built across Indonesia”. Lippo Karawaci is also the sponsor of healthcare real estate investment trust, First Real Estate Investment Trust  (SGX: AW9U).

To round it off,  Mr. Alvin Cheng, Chief Executive Officer of the REIT manager, had this to add:

The general outlook for Indonesia economy remained resilient, and the underlying business fundamentals remained stable, as illustrated by the growth in Gross Rental Income and continuing high occupancy rate. With the acquisition of Lippo Mall Kemang at end of last year, we look forward to increasing portfolio revenue and distributions to unitholders in 2015.

Foolish summary

LMIR last traded at S$0.355 on Wednesday. This translates to a historical price-to-book ratio of 0.84 and a distribution yield of around 7.8%. We will have to observe if this DPU level is sustainable, given the currency headwinds.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.