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Nightmare of Lippo Malls Indonesia Retail Trust

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Dividend investing offers investors an opportunity of building wealth through passive income derived from periodic dividends. In recent years, real estate investment trusts (REITs) had emerged as a favourite among investors hungry for yields. However, simply looking at a stock or REIT from the perspective of dividend yield without gaining a deeper understanding of the business fundamentals can be dangerous. In this article, we will examine whether Lippo Malls Indonesia Retail Trust is a value trap.

As the adage goes, high returns comes with high risks. There are REITs like Lippo Malls Indonesia Retail Trust that offer yields above 5%. But whether such pay outs are sustainable is another issue. You also need to pay attention to other factors like the debts, growth momentum, management efficiency and tenancy profile. Sometimes macroeconomic plays a part too.

Lippo Malls Indonesia

Since the Great Financial Crisis in 2008, the quantitative easing by United States led to a slew of hot money flowing to emerging markets like Thailand and Indonesia. The aim of these hot funds had been to seek high yields that these emerging markets offered. Time flies and now the United States’ economy is improving. As a result, the Federal Reserves is deleveraging balance sheet, causing funds to flow back to United States.

Indonesia is one of the emerging markets currently struggling against this wave of capital flight as rupiah weakened in recent years.

Profile of Lippo Malls Indonesia Retail Trust

Lippo Malls Indonesia Retail Trust debut in SGX mainboard in November 2007 with IPO price of $0.80. With market capitalization of only $769 million, this is one of the smallest S-REITs. This REIT started off with a portfolio of only seven malls in Indonesia with a net lettable area of 219,382 sq m. As at 30 June 2018, LMIR Trust’s property portfolio has grown to 23 retail mall properties and seven retail spaces located within other retail malls, all of which are located in Indonesia.

Over the decade, revenue of Lippo Malls Indonesia Retail Trust has surged from $102 million in 2008 to $197 million in 2017. Correspondingly, net property income increased from $88.3 million to $184 million. While it has been a steady ten years of growth for Lippo, the same cannot be said for its stock performance.

With dividend yield of 10.78%, Lippo Malls Indonesia Retail Trust is easily ranked the top yield REIT in Singapore. But crazy high yield was the result of [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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Updated: October 3, 2018 — 2:24 am

2 Comments

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  1. Hi master, need your advise about the news of’Indonesia raids home of Lippo Group’s deputy chairman in briber’ I am still holding Lippo mall trust and First Reit at the cost of 0.25 and 1.24. In your oppinion, will the corruption incident open an oppotunity to buy or it is risky to keep it?
    Thank you.

  2. Hi Poh Ling,

    Unlike OUE, Lippo Malls Indonesia and First Reit are exposed to the risk of Lippo Group graft probe because Lippo is the sponsor for both Reits.

    But I expect this issue to blow over because the Lippo Group is too big to fail in Indonesia. So there coild be opportunity of bargain buy. Nevertheless, I do think that the time is not ripe to buy because of the weakening of Indonesia rupiah and economic downturn in Indonesia. The forex risk could potentially erode the yield and returns. Just my opinion and not advice. You have to do your own due diligence.

    Regards,
    Gerald
    https://www.sgwealthbuilder.com

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