MITA No. 010/06/2009 Please refer to the important disclosures at the back of this document. SINGAPORE Company Update 28 August 2009 Maintain BUY Previous Rating: BUY S$0.485 Fair Value: S$0.51 Stock Code: Reuters: LMRT.SI ISIN Code D5IU Bloomberg: LMRT SP Event: Company Visit General Data Issued Capital (m) 1,076 Mkt Cap (S$m/US$m) 522/362 Major Shareholder Lanius Ltd 22.1% Penta Invt Advisors 15.0% Mapletree LM Pte Ltd 11.8% CPI Capital Partners Asia 8.4% ABN Amro Asset Mngmt 6.4% Free Float (%) 36.3% NAV per share (S$) 0.74 Daily Vol 3-mth (‘000) 1,134 52Wk High (S$) 0.615 52Wk Low (S$) 0.155 Highlights from malls visit Lippo-Mapletree Indonesia Retail Trust Meenal Kumar (65) 6531 9112 e-mail: [email protected]'Tis the season to spend. We visited seven of LMIR Trust's retail malls in Greater Jakarta and Bandung earlier this week and found a healthy, vibrant portfolio carrying on despite a weak retail sector. Both LMIR and retailers are gearing up for a seasonal up-tick in spending during the Ramadan fasting month. Spending typically spikes two weeks before Idul Fitri, when Indonesian companies pay out a mandatory employee bonus of one-month salary (Tunjangan Hari Raya). The manager also seemed optimistic about the Christmas spending season. Our 2H09 DPU estimate is 2.75 S cents, up 3.4% HoH. Casual leasing back in play. A tight retailer budget for advertising & promotions activities had dampened casual leasing demand in 1H09. Such prudence was very much lacking during our visit. The overwhelming majority of the malls' atriums and corridors were well populated with island kiosks, exhibitions and sales as retailers positioned themselves for the festive season. Operational control has also tightened with LMIR dealing directly with casual tenants or demanding up-front payments from wholesalers. Tenant turnover is painful. Some retailers including three anchor tenants that we know of have vacated or downsized space at the malls. The market remains soft with retailers hesitant to invest in new stores. LMIR's portfolio occupancy is above-market and, in our opinion, the manager has done a credible job in re-populating the space. Still, the turnover process (offer, lease negotiation, fit-out) takes time, affecting occupancy and revenue during the transition. Just fitting out a large anchor tenant can take three to four months. We noticed that the manager is using temporary leasing to support the rent gap between tenants now that A&P demand has picked up. In fact, we found retailers such as BreadTalk; Times bookstore; and Matahari eager to capitalize on the season by utilizing casual leasing while their units get fitted out. Still compelling. We understand the malls that were part of the acquisition pipeline at IPO have completed works but occupancy levels have yet to stabilize. The manager had earlier guided that the timing or size of any acquisition would depend on availability of funding. In our view, any acquisition scenario is more realistic on a six to 12 months time horizon. If the manager employs SGD-denominated debt, we believe the likelihood of a concurrent equity issue increases due to cautious lender sentiment. Slight variance in estimates edges our fair value estimate up to S$0.51 (prev: S$0.50). Maintain BUY (16% total return). Year to Revenue Distr Income DPU DPU Growth DPU Yield P/NAV 31 Dec (S$m) (S$m) (S cents) (%) (%) (x) FY 08 101.8 59.5 5.6 - 10.4 0.7 FY 09F 81.6 58.3 5.4 7.7 11.2 0.6 FY 10F 110.6 60.1 5.6 2.6 11.4 0.7 Note: FY08 includes LMIR's earnings from 19 Nov 07 to 31 Dec 07
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MITA No. 010/06/2009
Please refer to the important disclosures at the back of this document.
'Tis the season to spend. We visited seven of LMIR Trust's retail malls inGreater Jakarta and Bandung earlier this week and found a healthy, vibrantportfolio carrying on despite a weak retail sector. Both LMIR and retailersare gearing up for a seasonal up-tick in spending during the Ramadanfasting month. Spending typically spikes two weeks before Idul Fitri, whenIndonesian companies pay out a mandatory employee bonus of one-monthsalary (Tunjangan Hari Raya). The manager also seemed optimistic aboutthe Christmas spending season. Our 2H09 DPU estimate is 2.75 S cents,up 3.4% HoH.
Casual leasing back in play. A tight retailer budget for advertising &promotions activities had dampened casual leasing demand in 1H09. Suchprudence was very much lacking during our visit. The overwhelming majorityof the malls' atriums and corridors were well populated with island kiosks,exhibitions and sales as retailers positioned themselves for the festiveseason. Operational control has also tightened with LMIR dealing directlywith casual tenants or demanding up-front payments from wholesalers.
Tenant turnover is painful. Some retailers including three anchor tenantsthat we know of have vacated or downsized space at the malls. The marketremains soft with retailers hesitant to invest in new stores. LMIR's portfoliooccupancy is above-market and, in our opinion, the manager has done acredible job in re-populating the space. Still, the turnover process (offer,lease negotiation, fit-out) takes time, affecting occupancy and revenueduring the transition. Just fitting out a large anchor tenant can take threeto four months. We noticed that the manager is using temporary leasingto support the rent gap between tenants now that A&P demand has pickedup. In fact, we found retailers such as BreadTalk; Times bookstore; andMatahari eager to capitalize on the season by utilizing casual leasingwhile their units get fitted out.
Still compelling. We understand the malls that were part of the acquisitionpipeline at IPO have completed works but occupancy levels have yet tostabilize. The manager had earlier guided that the timing or size of anyacquisition would depend on availability of funding. In our view, anyacquisition scenario is more realistic on a six to 12 months time horizon.If the manager employs SGD-denominated debt, we believe the likelihoodof a concurrent equity issue increases due to cautious lender sentiment.Slight variance in estimates edges our fair value estimate up to S$0.51
(prev: S$0.50). Maintain BUY (16% total return).
Year to Revenue Distr Income DPU DPU Growth DPU Yield P/NAV
31 Dec (S$m) (S$m) (S cents) (%) (%) (x)
FY 08 101.8 59.5 5.6 - 10.4 0.7
FY 09F 81.6 58.3 5.4 7.7 11.2 0.6
FY 10F 110.6 60.1 5.6 2.6 11.4 0.7
Note: FY08 includes LMIR's earnings from 19 Nov 07 to 31 Dec 07
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LMIR Trust
Table of Contents
Page
I Bandung Indah Plaza 5
II Istana Plaza 7
III Mal Lippo Cikarang 9
IV Ekalokasari Plaza 11
V Cibubur Junction 13
VI The Plaza Semanggi 15
VII Gajah Madah Plaza 17
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Background. LMIR owns a diversified portfolio of eight retail malls and
seven retail strata spaces. It is one of the largest mall owners and operators
in Indonesia. The retail strata spaces are leased to Matahari (a sister
company of the trust's sponsor), one of the largest retailers in Indonesia.
The spaces are on ten-year lease terms with built-in rental escalation
clauses.
Defensive, everyday malls. The eight malls are strategically located within
well-established population catchment areas. The trust's properties target
the growing middle class population in major cities across Indonesia. The
retail malls are leased to anchor tenants such as hypermarkets; department
stores; fitness centres; and cinemas. Singapore investors would recognize
retailers including Nike, The Body Shop, Charles & Keith, J. Co Donuts
and BreadTalk. Local brands include The Executive (which has a positioning
equivalent to a G2000 store in Singapore); Invia; Stroberi; Hammer Clothing;
Solaria; and Jesslyn K-Cakes.
We visited seven of the eight retail malls earlier this week. In the following
sections, we describe in greater detail: mall positioning, performance, and
(~700 sq m); SportWarehouse (~700 sq m); and Cinema 21 (~1,600 sq m).
iX-Junction, an authorized reseller of Apple products, is also opening soon.
Some retailers familiar to Singapore investors include: Polo Ralph Lauren;
Pizza Hut; Charles & Keith; Bossini; Giordano; Secret Recipe; Dunkin'
Donuts; J. Co Donuts; Guardian; The Body Shop; and Starbucks.
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Source: OIRSource: OIR
Exhibit 25: Queue for HT Mobile exhibition Exhibit 26: Back view of Planggi Sky Dining (9th level)
Source: OIRSource: OIR
Exhibit 23: Inside Centro department storeExhibit 24: Times employs casual leasing before setting
up shop
VI) The Plaza Semanggi
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VI) The Plaza Semanggi
NLA: 64,566 sq m
Occupancy at 30-Jun: 92.2%
2Q09 NPI contribution: 15.6%
Avg weekday traffic: 40,000-50,000/day
Avg weekend traffic: 60,000/day
4 This is of course partially offset by the infamous Jakarta traffic. It took us 30-40 minutes to
travel between Plaza Semanggi and Gajah Madah Plaza, which in reality lie five kilometers
apart.
Your best meeting point. The Plaza Semanggi (Planggi) sits in the heartof Jakarta's CBD or "Golden Triangle" area. The mall is situated on theintersection of two of Jakarta's busiest roads, Jl. Sudirman and Jl. GatotSubroto. It is surrounded by commercial buildings and schools includingthe Atmajaya University (students comprise 20% of mall traffic). Planggi ispositoned as "your best meeting point" and we were pleasantly surprisedto find healthy crowds mid-Tuesday. The eight floors of the mall areorganized around zones including "Semanggi Food"; "Semanggi HomeGallery"; and "Semanggi Cellular Zone".
The 'everyday' niche. The CBD area is generally thought to be over-saturated with retail space4 but Planggi stands out as the only 'everyday'middle-income mall amongst a slew of Grade A and "premium Grade A"malls hawking Louis Vuitton and Chanel. We hear that in the immediateaftermath of the recent Marriott bombing, surrounding malls saw trafficdrop by roughly 40% but Planggi saw traffic increase 10% due to differencein perceived positioning. Similarly, while demand dipped for imported, high-end goods in recent months, many LMIR retailers (including local brandsThe Executive and Hammer Clothing) continue to report healthy YoY salesgrowth.
Unique traffic drivers. Balai Sarbini Concert Hall, a 2,200 sq m conventionhall (on fixed-rent from third-party manager) hosts Indonesian Idol andhouses three church congregations on weekends. LMIR has also usedspace above and adjacent to the car park to build "Planggi Sky Dining", analfresco dining concept on the 9th (1,300 sq m) and 10th (1,700 sq m)floors. Restuarants on this level are open until 2 AM and offer a stunningview of the Jakarta skyline. The manager tells us the 10th floor dining area,which opened in February 2008, attracts 25,000 customers per week.
Doing its part to boost traffic. Recent LMIR mall events include "SaleNow On" and a midnight sale event. At the Planggi midnight sale event,retailers offered 20-70% after-hour discounts and extended closing hour to12 Am from 9:30-10 PM. The manager said some retailers enjoyed volumesequivalent to one month's sales in that one day. Planggi plans to hold a 24-hour shopping promotion in September.
Performance. Anchor tenant Electronic Solutions downsized from 3,000sq m to ~1,600 sq m earlier this year. We understand this was a functionof over-ambitious planning and unproductive sales per sq m metrics on thepart of the retailer. The space is being converted into specialty units andrestaurants. Separately, we noticed some units out on temporary leasesbut understand a more permanent solution is in the works. On the whole,we found a fairly full and vibrant mall. Casual leasing is going great guns inPlanggi as well, and we spotted a long queue for a HT Mobile promotionexhibited in the main atrium.
sq m); Klub Aderai fitness centre (~670 sq m); and the now-closed Rimo
Department Store (~3,250 sq m) expected to be replaced by Matahari.
Retailers familiar to Singapore investors include: McDonald's; Starbucks
(opening soon); The Body Shop; and Dunkin' Donuts.
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LMIR Trust
Lippo's Key Financial Data
EARNINGS FORECAST
Year Ended 31 Dec (S$ m) FY08 FY09F FY10F
Gross revenue 101.8 81.6 110.6
Net property income 88.3 76.8 79.7
Interest income 2.0 1.8 1.7
Management fees -7.0 -5.6 -5.5
Trustee fees -0.3 -0.4 -0.3
Other trust operating expenses -3.8 -0.3 -0.2
Financial expense -6.4 -8.7 -9.3
Other credits 62.5 -56.1 0.0
Net income before tax and revaluation 135.2 7.4 66.0
Revaluation surplus net forex change -99.8 57.4 -52.8
Net profit before tax 35.4 64.7 13.2
Tax -48.6 -30.3 2.6
Net profit after tax -13.2 34.5 15.8
Income to be distributed 59.5 58.3 60.1
Note: FY08 includes LMIR's earnings from 19 Nov 07 to 31 Dec 07
BALANCE SHEET
As at 31 Dec (S$ m) FY08 FY09F FY10F
Cash 94.5 108.1 104.6
Trade and other receivables 19.2 15.4 20.9
Total current assets 113.7 124.9 126.8
Investment properties 830.0 962.3 910.5
Total non-current assets 892.5 964.8 913.0
Total assets 1,006.1 1,089.6 1,039.8
Trade and other payables 6.9 5.5 7.5
Current tax payable 5.7 6.0 6.0
Security deposit 8.7 7.0 9.5
Total current liabilities 21.3 19.9 24.4
Other financial liabilities 118.9 118.1 118.1
Total non-current liabilities 225.5 237.6 221.8
Total liabilities 246.8 257.6 246.2
Unitholders' funds 759.3 832.1 793.6
Total liabilities & unitholders' funds 1,006.1 1,089.6 1,039.8
Page 19 28 August 2009
LMIR Trust
CASH FLOW
Year Ended 31 Dec (S$ m) FY08 FY09F FY10F
Net profit before tax 35.4 64.7 13.2
Net finance costs 4.5 6.9 7.6
Fair value change adjustments 37.4 2.1 52.8
Other adjustments 3.1 2.9 3.2
Op profit before working capital changes 80.4 76.7 76.8
Working capital changes 70.9 5.9 -1.0
Tax paid -12.2 -12.7 -13.2
Cashflow from op activities 139.1 69.8 62.6
Cashflow from investing activities -927.1 0.8 0.7
Interest expense -5.9 -6.6 -6.6
Bank borrowings 118.9 0.0 0.0
Distributions paid -56.4 -47.5 -60.1
Funds from unitholders 813.4 0.0 0.0
Cashflow from financing activities 870.0 -55.9 -66.8
Net cashflow 82.0 14.7 -3.5
Net effect of exchange rates 12.5 -1.1 0.0
Cash at beg of year 0.0 94.5 108.1
Cash at end of year 94.5 108.1 104.6
Note: FY08 includes LMIR's earnings from 19 Nov 07 to 31 Dec 07
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Per share data
Year ended 31 Dec FY08 FY09F FY10F
Units outstanding (m) 1066.0 1076.5 1083.1
EPU (S cents) -1.2 3.2 1.5
DPU (S cents) 5.6 5.4 5.6
CFPS (S cents) 13.0 6.5 5.8
NAV (S$) 0.7 0.8 0.7
Key rates & ratios
Year ended 31 Dec FY08 FY09F FY10F
PER (x) - 15.1 33.2
NPI margin (%) 86.8 94.1 72.0
Distr to revenue (%) 58.5 71.4 54.4
DPU yield (%) 10.4 11.2 11.4
DPU growth - annualized (%) - 7.7 2.6
P/CF (x) 4.1 7.5 8.4
P/NAV (x) 0.7 0.6 0.7
Total Debt/Total Assets (x) 0.1 0.1 0.1
Total Debt/Equity (x) 0.2 0.1 0.1
Source: Company data, OIR estimates
Page 21 28 August 2009
LMIR Trust
For OCBC Investment Research Pte Ltd
Carmen LeeHead of ResearchPublished by OCBC Investment Research Pte Ltd
SHAREHOLDING DECLARATION:The analyst/analysts who wrote this report holds NIL shares in the above security.
RATINGS AND RECOMMENDATIONS:OCBC Investment Research’s (OIR) technical comments and recommendations are short-term and tradingoriented.- However, OIR’s fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-monthinvestment horizon. OIR’s Buy = More than 10% upside from the current price; Hold = Trade within +/-10%from the current price; Sell = More than 10% downside from the current price.- For companies with less than S$150m market capitalization, OIR’s Buy = More than 30% upside from thecurrent price; Hold = Trade within +/- 30% from the current price; Sell = More than 30% downside from thecurrent price.
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