Saturday, April 8, 2017

Lippo Mall trust

Lippo Mall trust is another one of my favorite REITs. It is the only Indonesia retail REIT listed on SGX. It has 20 retail malls and 7 retail spaces in different part of Indonesia. It pays out dividends quarterly with yearly distribution payout around 9.2% and gearing ratio is around 31.5%. The occupancy rate is around 94.3%.1,2

The sponsor of LMIR trust, PT Lippo Karawci Tbk is also the Indonesia's largest listed company which include urban development, large scale integrated real estate, hospitals, retail malls, hotels and asset management. From the sponsor plans, it is aiming to develop 40 new retail mall in Indonesia and to increase the number of malls under management to over 80 retail malls by end of 2030.2

Lippo Mall trust has given me impressive return of 20.63% with dividend and capital growth. I sold it when it went up. I have re-entered sitting on 7% capital growth and expected the annual yield to be around 9-10% for 2017.

Using Swot analysis. 

-Good management
The management has locked 70% of borrowings into fixed interest rate to mitigate against raising interest rate. The trust was able to achieve average positive rental reversion rate of 7.0%.2
-Good occupancy rate
The occupancy rate of 94.3% is higher than industrial average of 85.4% 3
Their assets are located not just in Jakarta but diversified over different part of Indonesia. This will help to mitigate their risks.
-Strong sponsor
Having the support of its Sponsor which can continue to provide a pipeline of retail assets.

Slowdown in economic especially with Trump becoming US president and their protective policies.
-Lease expiry
There is 23% lease expiry in 2017 and it could affect the yield of the trust.The lease expiry is 12%, 10%, 9% and 34% for 2018, 2019, 2020 and 2021 & beyond respectively. Although we have seen that the management is able to achieve positive rental reversion in 2016, it is something which we have to note of.2

-Indonesia is 4th most populous Nation in the world after China, India and US
Huge population with a rapid growing of middle-class is the key for sustainable growth. The projected growth for Indoensia in 2017 is around 5.2%. Coupled with the fastest urbanization growth in Asia, World Bank estimates more than 68% of Indonesia's population will live in cities over the coming 10 years.
-Low gearing ratio of 31.5% which is below 45% allows more acquisition.1
Through acquisition, the yield can further go up.

-Change in local regulation
Any change in local regulation might affect the management of the REIT.
-Risking interest rate
FED is raising interest rate and any faster pace of raising interest rate, it will weigh on the earning.
-Forex exchange rate
As their earning come from Indonesia and any drastic change in exchange rate, it will also affect the profit in Sing Dollar
-Compeitition from E-commerce
Singapore malls have been facing competition E-commerce and it has affected their earning.
Lippo must continue to manage their asset well in order to face competition from other companies.
-Instability in South China Sea
There is uncertainty in South China Sea which can lead to instability. 

I believe Lippo mall trust still has room for improvement and will do well in the future. Currently, I am holding 8k of at average price $0.374. I also bough for my dad to give him passive income. I might add on when there is opportunity in the future. It is not a call to buy or sell, please do your own due diligent. I will continue to share more information along the way. If you have any idea to share, feel free to voice out.

1 Information is based on 31 December 2016
Information is gather from annual report.
3 Information from Cushman & Wakefield Q4 2016
4 Information from the World Bank