Lippo Malls Indonesia Retail Trust's 12% Dividend Yield Highest Among Singapore REITs Now
Sudhan P●
Lippo Malls Indonesia Retail Trust‘s (SGX: D5IU) unit price is at S$0.19 at the time of writing.
Year-to-date, its price is already down around 21%.
At a price of S$0.19 per unit, according to our REITs tool, Lippo Malls Indonesia Retail Trust is valued at a price-to-book (PB) ratio of 0.7 and sports a dividend yield (technically known as distribution yield for REITs) of some 12%.
The distribution yield is the highest among Singapore REITs right now.
Even though the yield seems tasty for income-hungry investors, we shouldn’t buy REITs based on distribution yields alone.
Instead, we should analyse a REIT holistically by looking at other aspects of the REIT too.
Here, let’s analyse Lippo Malls Indonesia Retail Trust using a 10-step REITs framework and determine if it’s a buy in my books.
As a summary, here are the 10 steps I use to pick the best Singapore REITs:
- Growth in Gross Revenue and Net Property Income
- Growth in Distribution Per Unit
- Property Yield of Between 5% and 9%
- Gearing Ratio of Below 40%
- Interest Coverage Ratio of Above 5x
- Healthy Portfolio Occupancy Rate
- Positive Rental Reversions
- Presence of Growth Prospects
- Acceptable Price-to-Book Ratio
- Distribution Yield of Above 5%
Business Background
Lippo Malls Indonesia Retail Trust owns 23 retail malls and seven retail spaces located within other retail malls in Indonesia.
According to the REIT, those malls are “strategically located in major cities of Indonesia with large middle-income population”.
Some of its malls’ tenants include well-known brands such as Zara, Marks & Spencer, H&M, Carrefour, and Starbucks.
Lippo Malls Indonesia Retail Trust’s sponsor is Lippo Karawaci Tbk, one of the largest listed property developers and mall operators in Indonesia. Lippo Karawaci is also a co-sponsor of Singapore-listed healthcare REIT, First Real Estate Investment Trust (SGX: AW9U).
1. Gross Revenue and Net Property Income (NPI) Check
Check for: Increasing gross revenue and NPI
Lippo Malls Indonesia Retail Trust has a financial year that ends on 31 December each year.
The REIT’s gross revenue and NPI have been growing over the past five years, as seen from the chart below:
Verdict: Pass
2. Distribution Per Unit (DPU) Check
Check for: Increasing DPU
Even though Lippo Malls Indonesia Retail Trust’s gross revenue and NPI have grown over the past five years, its DPU has not kept up.
Lippo Malls Indonesia Retail Trust’s DPU has fallen from 3.10 Singapore cents in 2015 to 2.23 Singapore cents in 2019.
The huge DPU fall in 2018 was mainly due to a weakening Indonesian Rupiah against the Singapore dollar and negative effects of new Indonesian tax regulations.
Verdict: Fail
3. Property Yield Check
Check for: Property yield of between 5% and 9%
For FY2019, Lippo Malls Indonesia Retail Trust’s NPI stood at S$176.2 million while its portfolio valuation was S$1.82 billion.
The figures give a property yield of 9.7%, which is a resounding pass.
Verdict: Pass
4. Gearing Ratio Check
Check for: Gearing ratio below 40%
As of 31 December 2019, Lippo Malls Indonesia Retail Trust had a gearing ratio of 35.9%, which is below my limit of 40%.
Verdict: Pass
5. Interest Coverage Ratio Check
Check for: Interest coverage ratio above 5 times
For 2019, Lippo Malls Indonesia Retail Trust’s interest coverage ratio came in at 4.3x, given its NPI of S$176.2 million and financial expenses of S$41.4 million.
Therefore, Lippo Malls Indonesia Retail Trust doesn’t have an adequate interest cover.
Verdict: Fail
6. Portfolio Occupancy Rate Check
Check for: Healthy portfolio occupancy rate
As of end-2019, Lippo Malls Indonesia Retail Trust had a portfolio occupancy rate of 91.5%.
Even though the occupancy rate has been falling since 2015, it’s still above the industry average of 81.1% (which has been coming down too).
Verdict: Pass
7. Rental Reversion Check
Check for: Positive rental reversions
The average rental reversion for 2019 was a positive 4.4%, and it was also higher than that of 2017, which is excellent.
Verdict: Pass
8. Growth Prospects Check
Lippo Malls Indonesia Retail Trust sees strong tailwinds from population growth of the middle-income.
There’s also the potential for shopping mall rents to rise in Indonesia.
Lippo Malls Indonesia Retail Trust can also grow inorganically through the acquisition of properties from its sponsor, Lippo Karawaci.
The sponsor has provided Lippo Malls Indonesia Retail Trust with a right of first refusal (ROFR) over its retail malls to be built across Indonesia.
The ROFR agreement means that the sponsor will offer properties to the REIT first before offering it to any other company.
According to Lippo Malls Indonesia Retail Trust’s website, Lippo Karawaci “plans to develop 38 new retail malls in Indonesia and to increase the number of malls under management to over 80 retail malls by end of 2030, with a focus of developing and managing community malls which are located in cities with dense population”.
Verdict: Pass
9. Price-to-Book Ratio Check
Check for: Acceptable price-to-book ratio
At Lippo Malls Indonesia Retail Trust’s unit price of S$0.19, it is valued at a PB ratio of 0.67x.
Over the past five years, its average PB ratio stood at around 0.8x.
Therefore, Lippo Malls Indonesia Retail Trust looks undervalued since its current PB ratio is below that of the average.
Verdict: Pass
10. Distribution Yield Check
Check for: Distribution yield to be above 5%
At Lippo Malls Indonesia Retail Trust’s unit price of S$0.19, its distribution yield stands at 11.7%.
Verdict: Pass
The Final Verdict
Lippo Malls Indonesia Retail Trust has a final score of 8/10.
The REIT seems decent due to its historical growth in gross revenue and NPI, high property yield, strong growth prospects, and low valuation.
However, I’m not comfortable with investing in Lippo Malls Indonesia Retail Trust since its DPU has fallen over the past few years.
Therefore, I’d place Lippo Malls Indonesia Retail Trust on my watchlist to see if things improve in the future.
What Are Your Thoughts on Lippo Malls Indonesia Retail Trust?
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Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock.
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