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LMIRT's Jakarta mall contributed to plunge in fair value, S$34.8m impairment: manager

THE manager of Lippo Malls Indonesia Retail Trust (LMIRT) has disclosed that the significant declines in fair value of investment properties and its investments in subsidiaries last year were partly attributable to its mall in Kemang, Jakarta.

The expiry of master leases at Lippo Mall Kemang coupled with the “challenging” car park business environment due to the increasing usage of ride-hailing services were among the main reasons for the S$65.3 million decrease in fair value, LMIRT’s manager said on Monday evening in response to the Singapore Exchange’s queries on the trust’s full-year financial results.

“To mitigate the negative impact on the trust’s rental income, the manager is actively managing the tenancy mix of Lippo Mall Kemang, including converting the Matahari Departmental Store space into speciality and entertainment outlets,” the manager said.

Another factor contributing to the lower fair value was two assets being reclassified as investment properties held for divestment. On Dec 30, 2019, the manager inked conditional sale and purchase agreements to sell Pejaten Village and Binjai Supermall for a total consideration of 1.28 trillion rupiah (S$124.1 million). The difference between the consideration and the two assets' 2018 fair value was about S$17.3 million, the manager disclosed on Monday.

The trust’s portfolio – comprising 23 malls and seven retail spaces across Indonesia – was valued at 18.79 trillion rupiah as at Dec 31, 2019. A fair value loss of 674.3 million rupiah was recognised for 2019 when compared to the year-ago fair value of the portfolio of 19.42 trillion rupiah.

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As for investments in subsidiaries, LMIRT saw a decrease of about S$57.5 million to S$1.46 billion for 2019. The trust invests in investment properties through its wholly-owned subsidiaries in Singapore and Indonesia.

The S$57.5 million drop in investments in subsidiaries was mainly due to impairments provided for the lower fair value of LMIRT’s subsidiaries’ underlying assets when compared to their original investment cost, the manager said on Monday.

Lippo Mall Kemang accounted for S$34.8 million of such impairments, the manager added.

The rest of the decrease in investment in subsidiaries was largely attributed to capital repayments by the subsidiaries when they distributed cash back to LMIRT.

The manager on Monday also disclosed the reason for LMIRT’s significant unrealised loss on hedging contracts reported for 2019.

Cross-currency swap contracts accounted for about S$9.3 million out of this S$11.1 million unrealised loss, with the balance largely attributed to the Singdollar interest-rate swap contracts.

Global interest rates have declined since the entry of these hedging contracts, the manager said.

The cross-currency swaps were for swapping the US$250 million proceeds of the five-year senior notes – issued by LMIRT’s wholly-owned subsidiary in June 2019 with a 7.25 per cent coupon – into Singapore dollars with a weighted average fixed interest rate of 6.71 per cent per annum.

As for the Singdollar interest-rate swaps, those were for converting the floating interest rate payment obligations underlying LMIRT’s S$310 million of bank loans into fixed interest rate payment obligations.

“Nevertheless, as such unrealised hedging losses were non-cash in nature, there was no impact on the distribution to unitholders,” the manager said.

Units of LMIRT were flat at 20.5 Singapore cents as at 10.03am on Tuesday.

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