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Wednesday, December 28, 2016

Recent Action - LMIRT

This will be a quick update on my latest addition to the portfolio as I tried to allocate some capital from the profits made on Spackman sold this week.

I added 80,000 shares of LMIRT at a price of $0.37. My rough calculation tells me that's about 9% yield on the dividend.

People who know me knows that I used to work as an employee there so I'd probably not talk too much about the specifics operational performance of the company. 

CEO Alvin has also since then left and is currently vacated temporarily by Albert Cheok.

The main reason I'm buying this right now is I am predicting a few phases of growth in the next couple of years, both in terms of micro and macro.



Macro Factors

The tax amnesty reform is a super huge thing that happened across in 2016 for all Indonesians. These amount of money will be used for fiscal policies in improving the infrastructure of the country.

GDP growth seemed to bottom in 2016 and has seen a reversal in the last 3 quarters and expected to drive up further in 2017 and 2018. 

The rupiah currency has also seen some strengthening as a result of this reform.




The government has introduced a string of reform policies in a bid to build up the economy back and they streamline and welcome foreign investment into the country.

Central bank has also eased rates and required reserves for helping the economy to pick up.


Micro Factors

Operationally, rental reversions continued to be strong over the last 20 quarters and is expected to pick up even further in 2017 and 2018 as economy picks up.

The company has 23% of the lease that needs to be renewed in 2017, so I see this as a positive growth which will contribute to the bottomline.



The company has bonds and term loans that ranges from 3% to 5.18% with a weighted average expiry of 2 years. The company has recently acted by issuing a perpetual bond to refinance the existing term loan expiry albeit at a higher yield since this is classified under the equity portion of the balance sheet. Interest costs will reduce as a result but distribution will have to be considered for these perpetual security shareholders.

Summary

I am not expecting too much for this other than for the dividend yield and the natural growth from the organic portfolio.

This would fall under the 9 + 2% strategy, at least of what I see in 2017 and 2018.

I'll review again every quarter of the performance and development.

Thanks for reading.


26 comments:

  1. DPU seems to be improving slightly in 2016. Like you say, do not expect too much from Lippo except for its dividend yield.

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    1. Hi SR

      Fellow shareholders :)

      Dpu will get better over the next few quarters and when Lippo Kuta to come :) This will surprise on the upside :)

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    2. Yes, I heard about Lippo Kuta. Some reviews by travel blogs shows the mall are quite vacant and pretty far around 15 minutes from beach resorts. I held a minor position in Lippo as well.

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  2. Hi B,
    Yah !! I have same feeling about this REIT and vested around 3.8 % of my total portfolio ... I'm quite confident about demographic dividend about Indonesia as hold and hope it will turn out to be positive for this country ,,, and of course strengthening of IND Rupiah ... hope we are right ... but nobody really know ...
    Cheers !! :-)

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    1. Hi STE

      :)

      I do really hope that the management do not self destruct from here. The macro is in their favor now, its up to how they can utilize that factor from here.

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  3. Wah, another fellow unitholder :)

    I think I'm so much more pessimistic on LMIR than you guys though, based on their history.

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    1. Hi Unintelligent Nerd

      Their history is indeed nothing much to be impressed. I was a part of it when I was working for them so i know exactly what you mean by that. Hopefully, the tide will change given that the macro factor is highly in their favor. I still do have suspect on the micro aspect, so I hope they'll make up for it.

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    3. Thanks for sharing B. Could you please share with us more about its history that you mentioned? I am vested in this REIT since its distribution has been quite stable

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  4. I have worked and lived in Indonesia as an expatriate for the past 15 years. I fully agree on what you say about the macro economics is true, and there is good future for IDR which is heavily beaten down during the past few years. Also a fast growing middle class population will grow consumption rapidly. I have visited most of the malls around Indonesia (blame the significant other, haha) so I have more hands on observation.

    However while the economics of the country is on the mend, I have previously analyzed LMIR assets and I noticed that it is mostly consists of B or C class malls except for a few significant ones like sun plaza and pluit village. Most of these malls are old and not much effort is put into AEI's thus they are slowing losing quality tenants. Even sun plaza is being overshadowed by Medan newly built Centrepoint mall.

    What you say about hefty rental revision is true as property prices went up about 200-300% during the last five years (together with >10% yearly inflation) but it is no longer the case. Future will bring the rental revision down as the current inflationary pressures have tapered out.

    I have reviewed the Kuta plaza acquisition, and I am not impressed. The occupancy is still low, but lippo is giving income support to push the property to the trust. Again, in Kuta, this is considered a B class mall as well, with it's significant other competition (eg. Beachwalk & Discovery mall, which is by the seaside).

    While I would still like exposure to the growing middle class consumption in Indonesia, I think 9% yield is not significant enough for the quality of assets and would prefer to have a higher yield to compensate for the risk.

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    1. Hi Gark

      Many thanks for your valuable input, very sharp observations indeed.

      Like yourself, I knew much about the demographics and situation back there. I am actually an Indonesian and my house is not far away from the Pluit Village mall. I even went there a lot when I was in my teenager days. On top of it, I also worked for LMIRT 2 years ago, so I totally understand the shareholders' frustrations as well :)

      The reversion comes from the high expected inflation and property prices have been booming past 2 to 3 years. It's almost crazy there just doing the flipping.

      Like yourself, I am not impressed by Kuta acquisitions as well. In fact, I hardly am impressed by any of the acquisitions they've made in recent years but having worked in the company, I can totally understand the management motivation in it. It remains to be seen if Kuta will only be accretive in the mid term future, definitely not immediate.

      I'd also agree that the 9% is hardly any sort of exciting for an investment back there. I'd definitely not look to keeping this for the long term since a lot of development can change over time. To me, I think the next 1 to 2 years will be more clear cut and then we'll see what happens after that. I'd also rather go for much higher mos to be invested in such company for the long run.

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  5. Hi B,

    Thanks for sharing as usual, didn't know u worked for lmir before.

    They have about 26 indonesian properties with an average leasehold to expiry of around 14 years. I'm not sure if it's expensive to pay government for an extension of lease, and maybe you can shed some light here.

    Personally, if I'm buying this group of properties for 14 years left, getting a 9% yield pa ..Would get me a return of 126% (9% times 14years) in 14 years when the leasehold has ended , without yet factoring the payment of debt which must be paid eventually.

    The above is simplistic as it assumes there is no more acquisition to grow, no more extension of leasehold, no appreciation of share price or land price e.t.c

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    1. In other words, I need 11 years to break even assuming at present price and rental and another 3 years of returns of 9%.

      (I reread and understand that this is no long term for yourself)

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    2. Hi SGDividends

      The land lease extension is Indonesia is typically very easy to extend. They are usually on a shorter lease and an extension can be up to the next 20 years and it is very very cheap to do so, so on that part I am not overly concerned as compared to the land lease elsewhere which is longer.

      Having said that, refurbishment and aei still needs to be conducted appropriately so that's where the irr would come in versus say divesting old and buying a newer acquisitions.

      The Riady family controls a lot of things in indonesia, they are almost having the invisible godfather behind them to do things they want.

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    3. You need to understand the leasehold in Indonesia. If a land belongs to an individual, it is freehold but once it is held by a PT, then automatic will become leasehold (HGB. If later revert back to individual, will become freehold again. :)

      Lease extension is not a problem in Indonesia and does not cost much. Lippo (First REIT) recently extended the HGB for Mochtar Raidy CC for only 28K SGD.

      Basically do not worry on leasehold issues in Indonesia.

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    4. Thanks for the insights.

      since it's a leasehold when held by a PT , after 14 years, it goes back to government. LIPPO extends it and cheaply, and there is no obligation to return it to unitholders .

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    5. It does not work like that. There are two piece of document for each land. The 'sertifikat' which is the land title and either HM, HGB or HGU as the 'rights'. I am not an expert but, even if someone fail to renew the HGB the land does not revert automatically back to the govt or lippo. The PT which hold the property title is still entitled to the land, except it cannot be used for commercial purpose. There is no incentive for lippo to not renew the HGB or leasehold.

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    6. Thanks Gark for providing clarity to their landlease rights. This paints the trust in a better light.

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    7. Thanks Gark for your valuable input. I'm only familiar with the HM but you are right on that.

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  6. Thanks for replying. Good to hear that land lease can be extended at a cheap price :)

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  7. Sorry for a continual post as I just thought of it..

    What's stopping lippo from taking back the land after 14 years and relisting it in another reit, since at this point in time, the price one pays is for properties with 14 years leasehold after which the trust does not own it anymore

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  8. Forget LMIR. There are so many better stuffs out there.

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  9. Hi Brian,

    I am very surprised to learn that you have worked for LMIR before. I guess our backgrounds are very similar. I am now living in Jakarta and working in the real estate industry.I am also a fellow unitholder too.

    I am very clear on this REIT. I do not foresee myself holding longer than 2018 though since Kemang's income support is expiring in Dec 2017. I shall enjoy the boost in DPU from now till 2017!

    Rgds,

    Heartland Boy

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    1. Hi Heartland boy

      Yes i heard from some bloggers that you are Indonesian too ;)

      Are you working for sinarmas? Interesting that you are working there but acquainted with the market environment over here.

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    2. Hi Brian,

      I am a Singaporean working for a Singapore real estate developer in Jakarta.

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