3 Things Lippo Malls Indonesia Retail Trust’s Management Wants Investors To Know About Its Business

Last week, Lippo Malls Indonesia Retail Trust (SGX: D5IU)announced its 2017 fourth quarter and full year earnings update. As a quick introduction, Lippo Malls is the first and only REIT listed in Singapore that has a focus on retail malls in Indonesia. It has a portfolio of 23 retail malls and seven retail spaces located across Indonesia as of 31 December 2017.

There are three things the REIT’s management shared in the latest earnings update that I think investors should pay attention to.

The first is a high-level summary of Lippo Malls Indonesia Retail Trust’s income statement for the last quarter of 2017:

Source: Lippo Malls Indonesia Retail Trust 2017 fourth quarter earnings presentation

In the reporting quarter, we can see that the REIT’s distributable income and distribution per unit had declined despite an increase in gross revenue and net property income.

Lippo Malls Indonesia Retail Trust attributed its revenue growth to the acquisitions of Lippo Mall Kuta (on December 2016) and Lippo Plaza Kendari (on June 2017), and positive rental reversions; these were partially offset by a decline in the Indonesian rupiah against the Singapore dollar. As for its lower distributions, it was really due to the lower rupiah (which affected net property income and resulted in lower gains from hedging contracts, and lower income from retail spaces), and S$2 million in costs related to the change in trustee.

As of 31 December 2017, Lippo Malls Indonesia Retail Trust’s overall portfolio occupancy ratio stood at 93.7%, better than the industry average of 84.4%.

The next is the REIT’s rental reversion rates. Here is a chart from Lippo Malls Indonesia Retail Trust’s latest earnings presentation that show its rental reversion rates from the first quarter of 2011 to the fourth quarter of 2017:

Source: Lippo Malls Indonesia Retail Trust 2017 fourth quarter earnings presentation

What’s useful to note is that the rental reversion rates for Lippo Malls Indonesia Retail Trust had ranged from a positive 5% to 27.1% from 2011 to 2016. This is a strong performance, and suggests that the REIT’s properties enjoy high demand from tenants. But, the second half of 2017 saw the REIT’s rental reversion rates fall below 3.0% – investors may want to watch future developments in this area.

The last thing I want to discuss is the REIT’s outlook. As investors, we rely on many tools, including management’s comments, to help us gain insight on what to expect for the near- to long-term performance of our investments’ businesses.

Here are some useful datapoints on the REIT’s market conditions that were shared in the latest earnings update:

1. Indonesia’s GDP grew by 5.07% in 2017, up from the growth rate of 5.03% seen in 2016.

2. Indonesia’s headline inflation rate was 3.61% in December 2017 against a near one-year low of 3.30% in November 2017. Higher food and transportation prices drove the growth in inflation.

3. Retail sales in Indonesia grew 2.5% year-on-year in November 2017. The growth was buoyed by stronger food and beverages sales, as well as better sales of automotive fuels.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.