As at Aug 31, Lippo Mall Indonesia Retail Trust’s market capitalisation stood at a shade below $340 million. Also on Aug 31, the REIT manager made a bold announcement of an acquisition - to be sure its new flagship property - that bears a total cost of more than the REIT’s market cap.
Specifically, on Aug 31, LMIRT’s manager announced announced the proposed acquisition of Lippo Mall Puri for the equivalent of $330 million. The total cost to LMIRT’s unitholders will be $391 million comprising the Purchase Consideration of Rp.3,500.0 billion (approximately $330.2 million); Value Added Tax (Pajak Pertambahan Nilai) of Rp.350.0 billion (approximately $33.0 million); the Land and Building Acquisition Tax (Bea Perolehan Hak Atas Tanah dan Bangunan) of Rp.175.0 billion (approximately $16.5 million); and the estimated professional and other fees and expenses of approximately $11.3 million to be incurred by LMIR Trust in connection with the Acquisition.
The acquisition is likely to be funded by a combination of debt and equity. Debt financing of $120 million will comprise a combination of bank debt and up to $40 million of debt from the vendor, which is a unit of Lippo Karawaci, LMIRT’s sponsor. The rest of the cost would be funded by a rights issue which would $280 million.
LMIRT’s sponsor has provided an irrevocable undertaking to take up its full pro rata stake in the rights issue, and apply for all the excess rights units not taken up by the other unitholders up to 100% of the total number of rights units, subject to a whitewash waiver from the Securities Industry Council
Since the rights issuance is likely to be more than 50% of LMIRT’s number of units outstanding, unitholders’ approval may be needed for the rights issue and whitewash waiver.
In addition, the acquisition is also viewed as an interested party transaction, where the sponsor of LMIRT is related to the vendor. Hence the acquisition will also require unitholders’ approval, where the sponsor, which owns more than 32% of LMIRT, cannot vote. Unitholders can also vote on vendor financing.
Net asset value of LMIRT as at Dec 31, 2019 was $1,075.9 million as at 31 December 2019 when the portfolio was valued at Rp18,851 billion. In a revaluation exercise as at July 31, 2020, the portfolio valuation was Rp17,571.1 billion, 10.6% lower than end-Dec. In Singapore dollars, the portfolio was 13.4% lower at $1,702.5 million. NAV per unit as at June 30, 2020 is 27.73 cents. It is up to unitholders to decide whether this is a good deal for them.
