Lippo Mall

Lippo Malls' (LMIR) 1Q18 DPU of 0.67¢ was in line with estimates but fell 24.7% due to the 9.1% depreciation of IDR against SGD and an increase in tax as a result of a new tax regulation.

This new tax ruling, which came into effect in Jan 2018, levies a 10% tax on outsourced service and utilities recovery charges.

In local currency terms, gross revenue grew 10.3% to Rp504b, boosted by contributions from three new acquisitions namely Lippo Plaza Kendari (acquired in Jun '17), Lippo Plaza Jogja and Kediri Town Square (Dec '17). This was partially offset by the non-renewal of the master leases at seven retail malls.

However, net property rose at a slower 4.1% to Rp450.9, mainly due to higher property operating expenses, which more than doubled to $5.2m from $2.5m (last year's expenses included a one-off reversal of allowance on doubtful receivables).

During the quarter, the Indonesian mall operator renewed 7,912 sqm of space at a positive rental reversion of 5.3%.

Portfolio occupancy of 94% was above the industry average of 84.8%. The weighted average lease term was 4.06 years, with a balanced mix of long-term anchor leases and shorter-term ones to provide both stability and growth potential.

Aggregate leverage stood at 35%, with weighted average all-in cost (including perps) of 5.28% and debt maturity of 1.87 years. About 46.8% of its total borrowings are on fixed rate but refinancing risk is a key concern given that $280m of loans are due in 2018.

On the retail outlook, Indonesia's retail sales grew 1.5% in Feb, reversing a contraction of 1.8% in the preceding quarter. Based on Bank Indonesia's Retail Sales Survey Feb 2018 of 700 retailers in 10 major cities, March retail sales is projected to rise 1.7%.

Nonetheless, the trust is not over-reliant on any one single tenant and will actively work with its mall operator to improve tenant mix and organise events and promotional activities to increase shopper traffic.

Moving forward, LMIR is also exploring new ways to strengthen its ability to hedge its cash flow and reduce the impact of currency fluctuations so as to mitigate the risk of further depreciation of the rupiah in the coming quarters as well as the effects of the new tax ruling.

At current level, LMIR trades at annualised yield of 8.1% and 1x P/B.

The street is bearish on the retiail trust with 2 Sells and an average TP of $0.32.