SINGAPORE (June 28): OCBC is maintaining its “buy” recommendation on Lippo Malls Indonesia Retail Trust (LMIRT) with an estimated fair value of 47.5 cents given potential high demand on its latest acquisition.
Since OCBC upgraded the LMIRT from “hold” to “buy” in June 7, the REIT has delivered total returns of 45.7%.
On June 21, LMIRT completed its acquisition of Lippo Plaza Kendari (LPK) for about $32.2 million which was financed through the issuance of perpetual securities under its $1 billion Euro Medium Term Securities programme.
(See also: Lippo Malls Indonesia Retail Trust to acquire Indonesian mall for $32.2 mil)
In a Wednesday report, analyst Deborah Ong says, “Given the mall’s FY16 NPI of $3.0 million, the acquisition cap rate is ~9.0%. We are comforted by the five-year Master Leases (the income of which represents 46% of the mall’s total gross revenue in FY16) as well as the vendor’s commitment to provide an asset enhancement initiative for the mall.”
This acquisition is expected to increase LMIRT’s FY16 NPI by 1.7% on a pro forma basis. Following the completion of the LPK acquisition, LMIRT will have in its portfolio 21 retail malls and seven major retail spaces in malls around Indonesia.
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LMIRT issued $120 million worth of fixed rate perpetual securities with a fixed rate of 6.6% pa earlier this month.
“Apart from the Kendari acquisition, we believe the perpetual securities will also be used to temporarily refinance the $50 million 5.875% bond due in July 6, 2017 and the $75 million 4.48% bond due November 28, 2017,” says Ong.
Ong also foresees a potential long-term demand for Indonesian retail with the country’s increasing middle class.
Units in LMIRT are trading at 44 cents flat at 12.09pm.
