LMIRT unitholders question size, timing of Lippo Mall Puri acquisition
The trust is proposing to buy the strata title units of the mall, from Lippo Karawaci, for approximately S$336.5m
Uma Devi
Singapore
UNITHOLDERS of Lippo Malls Indonesia Retail Trust (LMIRT) on Wednesday night grilled the real estate investment trust (Reit)'s manager over the pricing and timing of a proposed asset purchase. At a virtual dialogue organised by the Securities Investors Association (Singapore) (Sias), they also raised questions about the Reit's gearing level and the dilutive effects of the transaction.
LMIRT is proposing to buy the strata title units of a mall in West Jakarta called Lippo Mall Puri, from the Reit's sponsor Lippo Karawaci, for approximately S$336.5 million. The deal is a sizeable one given LMIRT's market cap of S$242.9 million.
The acquisition will be financed through a combination of up to S$120 million in debt - comprising bank debt and a S$40 million loan facility from the seller - as well as a rights issue of 160 units for every 100 units to raise S$281 million.
James Liew, chief executive officer of LMIRT's manager, said the trust is obtaining its soon-to-be "flagship asset" at a "very competitive price" from its sponsor.
Based on two valuation reports - one by Colliers and the other by Cushman & Wakefield - the average appraised value of the property at end-June was S$348.7 million without vendor support and S$371.7 million with vendor support.
"The Reit is not paying a single cent for the vendor support," said Mr Liew. Responding to a question about whether Lippo Karawaci was getting the upper hand in the transaction, he added that it was minority unitholders that appeared to be "getting a better deal".
Unitholders' votes will be cast at an extraordinary general meeting (EGM) scheduled for Dec 14 at 10am, on four resolutions. The first is to approve the acquisition. The second is to approve the rights issue. The third waives the right of unitholders to receive a general offer for their units from Lippo Karawaci and its concert parties, as the rights issue may result in Lippo Karawaci and its concert parties increasing their stakes in LMIRT. The fourth is to approve the loan facility of up to S$40 million.
Lippo Karawaci and its concert parties will only be allowed to vote on the second resolution. All four resolutions must be approved for the acquisition to go through.
Mr Liew said that if unitholders do not approve the acquisition, LMIRT would lose "the ability to acquire an asset that is fundamental to the rebuilding of our stock".
He added that it will not be easy to find another asset of a similar nature and "at such a big discount".
The acquisition will certainly be a major addition to LMIRT's portfolio. It will increase assets under management by 18.6 per cent to 22.4 trillion rupiah (S$2.12 billion), and net lettable area by 13.6 per cent to 1 million square metres.
But it does not appear to have convinced investors as LMIRT units have trended down since the announcement of the deal. The units closed at 8.3 Singapore cents on Thursday. For the financial year ended December 2019, LMIRT's distribution per unit was 2.23 Singapore cents - over a quarter of the current unit price.
Since December, LMIRT has divested two properties. After factoring in the divestment of those two properties, the acquisition of Lippo Mall Puri, and the issue of new units, LMIRT's pro forma DPU for FY2019 would be 0.97 Singapore cent with vendor support and 0.85 cent without vendor support.
LMIRT's rights issue that has been priced at six Singapore cents per unit works out to a theoretical ex-rights price (TERP) of about 6.9 cents per unit and a pro forma historical DPU yield of 12 to 14 per cent.
Because of the large rights issue, LMIRT's net asset value (NAV) per unit will fall after the acquisition - from 28.2 Singapore cents as at end-December, to 14.35 cents. Its discount to its NAV, however, will improve. At current levels, LMIRT is trading at about 29 per cent of its NAV.
At a TERP of 6.9 Singapore cents, it would be trading at about 48 per cent of its NAV.
At the dialogue, LMIRT's unitholders questioned the need to undertake the acquisition and the rights issue at this time. They also raised concerns about the valuation of the property.
As at end-2018, the property had been valued at 3.96 trillion rupiah with vendor support and 3.75 trillion rupiah without vendor support. This was based on the average of two reports commissioned by LMIRT from the same two valuers.
The valuation of the property has therefore declined just 2.4 per cent with vendor support and 3.4 per cent without.
LMIRT's circular said the valuations used a discounted cash flow method to value the property as an income producing property, and that the impact of Covid-19 was taken into account.
But there are misgivings about whether or not the valuation has been conservative enough given the Covid-19 situation in Indonesia.
LMIRT's chairman and lead independent director Murray Dangar Bell, however, said that without the acquisition LMIRT's growth would be slower.
