LMIRT faces opposition from unitholders on proposed Lippo Mall Puri acquisition

Singapore

THE acquisition by Lippo Malls Indonesia Retail Trust (LMIRT) of Lippo Mall Puri was in the works for over a year. But two weeks before unitholders are due to vote on the transaction, opposition has arisen to the deal.

This week, LMIRT management revealed that it had on Dec 4 received a letter from some LMIRT unitholders requesting the addition of a new resolution for the upcoming extraordinary general meeting (EGM) on Dec 14.

They asked that voting on the acquisition be postponed by at least three months so that a new valuation can be commissioned for the property.

Since then, The Business Times has seen two other letters sent by the same group of unitholders to LMIRT.

Approached for comment, LMIRT's manager confirmed it had received another letter but said it would not be responding. It did, however, say it had received further queries from Singapore Exchange Regulation and would be responding to those.

One of the issues that the dissenters raised is the early termination of some leases after valuations were completed. A particularly large termination was that of department store Parkson, which vacated 8,290 square metres (sq m) of the mall's net lettable area (NLA) at end-October. That works out to 6.7 per cent of the mall's 122,862 sq m of NLA.

A supermarket called Ranch Market has since taken over 1,499 sq m of the space vacated by Parkson, and will commence operations in the first quarter of 2021. Another 435 sq m have been leased to three F&B tenants. LMIRT's manager said the remaining 6,356 sq m will be reconfigured in an exercise slated to be completed by March next year.

This information was disclosed in LMIRT's circular to unitholders, filed last month. But the unitholders are contending that the circular's use of a headline occupancy rate of 91.9 per cent for the mall (and 89.9 per cent after the conversion of some parking space into retail space), painted a rosier picture than warranted of the mall's prospects.

After taking into account the early terminations, the mall's occupancy rate would fall to between 79.8 and 81.8 per cent - depending on whether the converted space is included.

The average occupancy rate in Jakarta, according to the circular, is 89.7 per cent. In West Jakarta, it is 90.4 per cent. Lippo Mall Puri's key competitors report average occupancies ranging from 83.1 to 99 per cent.

Although the independent valuations done by both Colliers and Cushman & Wakefield for the transaction assumed a low occupancy rate of 83 per cent in year one, the unitholders want LMIRT's managers to exercise greater caution. They have asked for a new valuation of the property and are concerned about the price LMIRT is paying.

The dissenting unitholders have the support of LMIRT's single largest minority unitholder, according to documents viewed by BT. But the acquisition only requires the approval of more than 50 per cent of the total share of votes cast at the EGM.

LMIRT's sponsor and its associates have control of 32.3 per cent of the trust, and will abstain from voting on three of the four resolutions up for approval at the EGM. All resolutions must be passed for the Lippo Mall Puri acquisition to take place.

One of the unitholders, who spoke to BT on condition of anonymity, said she bought into LMIRT earlier this year when it was trading at around 20 Singapore cents. Units in the trust closed on Tuesday at 8.4 cents.

A former auditor, she had hoped the investment would be able to supply her some income now that she has retired. Although her units in LMIRT constitute a substantial portion of her savings, she said she is not as badly off as some of the other unitholders she has spoken to - among them retirees, airport security staff and MRT station employees. Some of these investors bought into the Reit (real estate investment trust) when it was trading above 30 cents.

She acknowledges that unitholders have run out of time to gather the support needed to stall the deal.

LMIRT's trust deed allows a meeting to be requisitioned by at least 50 unitholders, or unitholders collectively holding at least 10 per cent of the trust. As at Wednesday afternoon, the group consisted of 41 unitholders with over 6 per cent of the vote.

But unitholders must also be given 14 days' notice before such a meeting. LMIRT has said the request by this dissenting group for a new resolution at the upcoming Dec 14 meeting would not meet this requirement.

In response to queries from BT, the manager of LMIRT said: "As things stand, the manager presently believes that it would only be appropriate to allow unitholders the opportunity to exercise their right to vote on the resolutions which have been validly tabled in accordance with all applicable requirements."

In response to queries from the SGX, LMIRT's manager highlighted that the occupancy rate as at June 30 stood at 89.9 per cent with 110,435 sq m of occupied leases, against a total net lettable area (NLA) of 122,862 sq m, including the P2 space. The P2 space refers to the car park lots being restored to their original function as leasable retail space.

Excluding the P2 space, the property's occupancy rate stood at 91.9 per cent. The occupancy rates included Parkson, which was still physically operating within the property at the time.

The manager also clarified that the 12,440.57 sq m of early terminated leases (about 10.1 per cent of the total NLA) mentioned in the circular was for the period January to September this year. 9,387 sq m of leases - including Parkson's lease space of 8,290 sq m - were early terminated after June 30.

It went on to say that the difference of 3,053.57 sq m of leases was already accounted for as vacant space when reporting the 89.9 per cent occupancy. In addition, 293 sq m of leases expired and were not renewed in Q3 2020.

As at Sept 30, after adjusting for any tenants that have given early termination notices but were still physically operating within the property (including Parkson) and including any new leases signed to occupy retail spaces that will be vacated due to early termination, the property's adjusted occupied area amounted to 103,124 sq m. The adjusted occupancy rate stood at 85.6 per cent excluding P2 space, and 83.9 per cent including P2 space.

It also clarified that the independent valuers, in making their assessments of the property's valuation, were aware of the early termination of the area Parkson occupied. They accordingly factored this into their valuations.

The year 1 occupancy rate was assumed to be 82 per cent (including the P2 space), versus 89.9 per cent as at end June.

Units in LMIRT closed unchanged at 8.4 Singapore cents on Wednesday.