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LMIRT Lippo malls indonesia retail trust

MARKET TALK: Lippo Malls Indonesia Retail Trust – a spate of negative reviews, but is the stock oversold?

Jan 5, 2023 – A series of credit rating downgrades have hit Lippo Malls Indonesia Retail Trust (LMIRT) in the past six months. Fitch recently downgraded LMIRT to ‘B-‘with a negative outlook in November 2022, just four months after they downgraded LMIRT to ‘B’ with a stable outlook.

A large part of the reason for the rating downgrade is refinancing risk. LMIRT secured a bridging loan facility of $67.5m in October 2022; however, this was for a year, and there is a refinancing risk of some S$467.5m over the next two years. It doesn’t help that over half of LMIRT’s borrowings are on floating interest rates, which increases both interest cost and the difficulty in refinancing.

At the same time, LMIRT is recovering from the impact of COVID with both occupancy and rental rates increasing, and these should see rental revenue increase over time. This would, to some extent, offset the impact of rising interest costs.

Whilst LMIRT’s leverage ratio (debt to total asset) of 43.7% is nearing the regulatory cap of 45%, this merely constrains the REIT’s ability to take on further debt and does require paying off its loans to keep within the 45% limit. 

On balance, LMIRT is surely going through some tough times, with rising interest rates coming on the back of the difficult COVID years. Yet this merely represents a lack of growth opportunities in the near term, not concerns over the REIT’s commercial viability.

With the REIT now trading at 0.25x book value, the stock is trading at distressed levels, which may not accurately indicate the company’s potential.

Lippo Malls Indonesia Retail Trust stock chart

Source: Bloomberg