SINGAPORE (June 12): OCBC is maintaining its “buy” call on Lippo Malls Indonesia Retail Trust (LMIRT) with a fair value of 43.5 cents.
This follows LMIRT’s recent conditional share purchase agreements to acquire the entire issued share capital of PT MASB for about $33.2 million, which is to be financed from debt and/or perpetual securities.
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“Pending the fulfillment of the conditions precedent to the acquisition’s completion, we keep our forecasts for now,” says lead analyst Deborah Ong in a Monday report.
PT MASB owns a four-storey shopping mall – a Kendari property under a Build-Operate-Transfer (BOT) agreement with the government of Southeast Sulawesi – that has yet to reach stabilised occupancy or full market rental levels.
Upon completion of acquisition, LMIRT’s portfolio is estimated to increase by about 1.6%.
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On a pro forma basis, FY16 DPU would increase 0.3% from 3.41 cents to 3.42 cents.
Immediately prior to completion of the Kendari acquisition, vendor PT MPU will enter into five-year Master Leases occupying 4,700 sqm in NLA for IDR15.1 billion ($1.57 billion) in annual rent.
However, in FY16, the tenants in the would-be Master Leases contributed only 36.4% of the IDR15.1 billion rent.
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“Nonetheless, we note that the two independent valuers expect this total underlying revenue to be sustainable from the sixth year onwards,” says Ong.
PT MPU will also provide an asset enhancement initiative at its own costs to convert part of the existing major tenants area into specialty tenants area and casual leasing area to improve rentals. These areas will form part of the Master Leases.
“While the acquisition is relatively small, we see the acquisition of an asset outside Jakarta as being in line with LMIRT’s strategy for tapping on Indonesia’s continued urbanisation,” says Ong.
Units of LMIRT closed at 43 cents on Monday.
