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Lippo Malls Indonesia Retail Trust cuts Q2 DPU by 34% to 0.59 S cent

LIPPO Malls Indonesia Retail Trust (LMIRT) has slashed its second-quarter distribution per unit (DPU) amid swelling property operating expenses and higher income tax, with the softer rupiah no help.

DPU dropped to 0.59 Singapore cent for the three months to June 30, the manager said on Thursday - a 34.4 per cent plunge against 0.9 Singapore cent for the same period the year before.

Net property income slipped by 7.8 per cent to S$43.2 million, even though service charge and utilities recovery from tenants helped to cushion the drop in rental income and sent gross revenue higher by 5.5 per cent to S$52.7 million.

LMIRT's income distributable to unit holders sank by 33.8 per cent to S$16.8 million, from S$25.4 million.

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Meanwhile, costs were up, with property operating expenses more than tripling, to S$9.5 million, on costs incurred for maintenance and operations after the termination of outsourced maintenance services for five malls, as well as net allowance for doubtful debts against a net reversal the year before.

Income tax expenses grew from S$5.23 million to S$7.62 million amid a new 10 per cent tax on certain income from land and building leases.

The rupiah's slide against the Sing dollar also ate into the top and bottom line. In Indonesian currency terms, net property income inched up by 1.3 per cent, while gross revenue rose by 15.9 per cent.

Rental income fell on the expiry of master leases, but was partly offset by rental income from Lippo Plaza Kendari, acquired in June 2017, as well as Lippo Plaza Jogya and Kediri Town Square, added to the portfolio in December 2017.

For the half-year, net property income declined by 6.2 per cent to S$87.1 million and distributable income slid by 29.1 per cent to S$35.8 million, on a 3.4 per cent uptick in gross revenue to S$101.8 million.

LMIRT has a portfolio of 23 malls and seven retail spaces in other retail malls. Average portfolio occupancy was 93.6 per cent, while the weighted average lease expiry was 3.94 years as at June 30, with rental reversion of 4.2 per cent.

Chan Lie Leng, chief executive of the manager, said in a media statement: "As anticipated earlier in the year, the rupiah’s continued depreciation has impacted overall earnings, while the effect of the new tax regulations has also been felt on our bottom line results. On the other hand, we have benefited from our enlarged portfolio, with the three new acquisitions in 2017 contributing to total gross revenue growth."

She added: "Looking ahead, we will continue to monitor exchange rates closely and explore ways to strengthen our currency hedges as well as mitigate the impact of the new tax ruling costs. Our search for good quality, yield-accretive retail assets and asset enhancement opportunities continues as we remain committed to delivering growth and maximising unit holders' value."

Credit agency Moody's lowered its rating on the trust to "Ba1" in March before withdrawing the rating a few weeks later "for its own business reasons".

The Reit was downgraded by OCBC Investment Research and CGS-CIMB analysts in April, over the anticipated impact of the new tax regulations. OCBC ceased its coverage of the counter the next month.

LMIRT shed half a Singapore cent, or 1.56 per cent, to S$0.315, before the results.