Comments on LippoMalls Q3 Results

Many people don’t seem to be happy with LippoMalls as it seems that dividends per unit dropped from $0.79 to $0.73. As a follow up post to LippoMalls Goes On An Acquisition Spree In October 2012, we will examine if there is any cause for concern with this drop in DPU.

Firstly, Q3 2012 Gross Revenue is $30,553 which is lower than Q3 2011 Gross Revenue of $33,296. However, this is actually due to several reasons.

1 – Gross revenue in Q3 2011 includes service charge and utilities recovery from mall’s operational activities. However, these operational activities are outsourced to a third party starting from May 1 2012. The operating company is responsible for all costs directly related to the maintenance and operation of the individual retail malls, as well as pay for the rental of office and use of equipment. The operating company also has the right to collect a service charge and statutory income from the tenants.

2 – Effect of foreign exchange rates

3- The gross revenue also includes revenue from the two newly acquired Pluit Village and Plaza Medan Fair to offset part of the losses

Despite all the adjustments, net property income is up 31.3% from $22.5 mil in Q3 2011 to $29.5 mil in Q3 2012.

The most important change though comes from the 186% increase in financial expenses from $2.06 mil to $5.9 mil  due to the issuing costs of the medium term notes. This is however just a one time impact which will see more revenue in future due to the new properties to be acquired.

Now the important thing is for the management to be able to increase occupancy rates in the new malls and manage them well. So the drop in DPU is not really alarming, but we will have to watch the management closely to see if they can deliver.


For more information, you may be interested in:

LippoMalls Goes On An Acquisition Spree In October 2012

Results Release of LippoMalls REIT FY2011 – Disappointing Performance or Not?

LippoMall Rights Going At Big Discount

My Singapore Stock Portfolio Early September 2012

Understanding Singapore REITs Part One – REIT Categories



12 Comments on Comments on LippoMalls Q3 Results

  1. Hi Calvin,
    I have also noticed in other bloggs that alot of investors are not too impressed with the managment of Lippo malls. One of their disatisfaction If I could remember was the foreign exchange hedging which resulted in losses, couldn’t quite remember the others. Like the chinese saying, no smoke without fire, I guess there must be some truth to it.

    • Hi Mich, with regards to forex hedging, it’s considered an insurance against devaluation of the rupiah. It is not meant to be profitable. If rupiah goes down, the forex gains will make up for the depreciation in currency, if rupiah goes up, you do not get the increase in value as your rate is locked in, hence getting a loss. I don’t see how the management can be blamed for ‘incorrect hedging’, I certainly do not know when the rupiah will go up or down.

      Other dissatisfaction is probably due to the dividend yields going down and rights issue. I don’t agree with everything they do, but the rights issue did give me an opportunity to acquire a lot of shares for cheap. I have explained my views and will wait for confirmation from the management.

      • Hi Calvin,
        There seem to be more misses than hits for Lippo malls management. Somehow what they have done so far don’t instill alot of confidence in investors. But like what you say, time will tell.

  2. Hi Calvin ,

    Pluit Village occupancy rate no much improve since acquisition , do you think LMRT management is able to improve new malls performance in near term ? My opinion is Singapore based retail S-REIT is better choice since the yield difference is narrow .

    • Hi mlbeh, you are right about Pluit Village for occupancy rate being pretty much the same since acquisition. However, the occupancy rates for other malls have remained somewhat consistent with some minor improvements, so the average occupancy actually increased from 94.7% in Q2 to 95.8% in Q3(excluding the new 6 acquisitions). So I think the outlook still seems alright to me.

      As of now, Singapore retail REITs are yielding about 4+% while the yield for LippoMall is mid 6%. So there is still a substantial yield spread there. Besides, you are buying the Indonesian growth story here with LippoMalls, so its a good exposure and diversification. Of course I am not saying buy now, I am just keeping what I bought as based on my cost I still get 8+% yield.

      • Hi Calvin :

        Many thanks for your comments , i hold some LMRT because i think Indonesia have better growth in retail sector due to their huge middle class population but recently LMRT management acquired too many new malls in short period
        worry me , my thinking is they should improve the 2 malls bought last year to optimum level , then only looking for new mall , now with so many new malls , no sure management have enough resource to optimize the potential of every mall , if the new mall performance same as before acquisition , the DPU will be down due to the acquisition cost .



        • Hi mlbeh, yup I too agree they should try to run the 2 malls first instead of being overly aggressive. However, the last 1 for 1 rights dilution made many investors not too happy so they might be trying to make up for the dilution as well.

          Another way to look at it is the economies of scale argument which they brought up which is somewhat true to give them more bargaining power against suppliers and tenants. They have outsourced some of the mall management to 3rd party, we will see how that works out.

  3. Hi Calvin,

    Have been reading your website consistently. I miss your seminar as i in office working.

    As i can see now the market is correcting and i intend to invest in both Cache Logistic Trust and MapleTree Commerical Trust.

    Can advise what will be good price to enter ?

    Do u see Cache will drop below 1.10 ?

    • Hi Raymond, thanks for following. I hope you will be able to come for the next seminar.

      Yes, they are both good REITs with strong potential. Cache Logistics is very defensive with the warehousing assets while MCT has good growth potential from increasing rents and occupancy in Vivocity and ARC.

      I can’t predict where the price will go, I just react when it happens. I can’t really advice you on a good price to enter as it is quite subjective, it depends on how much returns and yield you are aiming for.

  4. 2% yield difference not enough for me to compensate for inability to monitor performance at first hand, foreign currency risks and other risks. Feel safer with local reits.

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