Lippo Malls Indonesia Retail Trust's property, Lippo Malls Kemang. (Photo: Lippo Malls Indonesia Retail Trust)Lippo Malls Indonesia Retail Trust's property, Lippo Malls Kemang. (Photo: Lippo Malls Indonesia Retail Trust)

Singapore-listed retail REIT Lippo Malls Indonesia Retail Trust (LMIRT) (SGX:D5IU) announced on 15 September that it has entered into a sale and purchase agreement with Indonesian developer PT Almaron Perkasa to purchase a shopping mall in South Jakarta for IDR3,600 billion (SGD385.7 million).

The property, Lippo Mall Kemang, is a five-storey shopping complex with net lettable area (NLA) of 59,377 sqm and 2,300 car park lots. The mall has four anchor tenants including cinema operator Cinema XXI, 14 large tenants including gym operator Fitness First and 182 other speciality tenants. The property's occupancy as of 30 June 2014 is 92.8%.

Lippo Mall Kemang, which targets Indonesia's middle to upper-middle income segment, is also said to serve as a podium for the proposed J.W. Marriott hotel.

The acquisition is expected to increase LMIRT's total portfolio size in value by approximately 27% to SGD1.79 billion from SGD1.41 billion previously.

Based on the pro forma financial statements for the year ended 31 December 2013, the net property income (NPI) from the mall ws SGD33.6 million, which represents, on a historical pro forma basis, a 23% increase in LMIRT’s NPI for the year ended 31 December 2013.

To partially fund the acquisition, the managers of LMIRT plans to issue up 301,369,000 new units under an equity fund raising exercise.

PT Almaron Perkasa is to receive IDR3,180 billion (SGD340.7 million) of the purchase price in cash with the remaining IDR 420 billion (SGD45 million) will be paid with the issue of new units. Should the fund raising be executed in full, it will dilute LMIRT’s current unit in circulation by about 12%.

According to the REIT, the issuance of new units would avoid a significant increase in LMIRT’s aggregate leverage and provide an allowance for it to remain below the regulatory gearing limit of 35.0%.

The REIT clarified in an official statement that should the acquisition be funded by debt instead of the issuance of new units, the aggregate leverage ratio of LMIRT is expected to increase from 28.3% as at 30 June 2014 to 33.5%. The issuance of new units will allow it to have a lower aggregate leverage at 31.2% instead.

Units of LMIRT ended the day lower by more than 2% to end at SGD0.40 on the Singapore Exchange.

Acquisition of Lippo Mall Kemang is set to increase Lippo Malls Indonesia Retail Trust's portfolio value by more than 20%.
Acquisition of Lippo Mall Kemang is set to increase Lippo Malls Indonesia Retail Trust's portfolio value by more than 20%.

By Ridzwan Rahmat

Ridzwan has been analysing REITs and business trusts since 2008, and personally manages a portfolio comprising mainly of SGX-listed REITs. He founded REITsWeek in 2013.