• Rental guarantee for one mall
• Maintain FV of S$0.45
Proposed acquisitions
Yesterday, LMIRT announced the proposed acquisitions of four properties from non-interested parties. The first property is Palembang Square, which is currently undergoing AEI that will increase its NLA by ~30%. The second property is Palembang Square Extension, a new one-level underground retail mall which opened in 2Q12. It is directly connected with the first property. These properties, which would be LMIRT’s first in Palembang, South Sumatra, are part of a mixed-use development that also consists of a hotel and a proposed hospital. The third and fourth properties are Tamini Square and Kramat Jati Indah Plaza (KJI), which are located in East Jakarta. All four properties are to be purchased at a discount to book value. Including the aggregate purchase consideration of ~S$180.7m and the acquisition fee payable to the manager, as well as professional fees and other expenses, the total acquisition cost is expected to be S$188.1m.
Rental guarantee for KJI
As at Jun 2012, the occupancy rate at KJI was ~51%. Management indicates that as of Aug the AEI at KJI has been completed and as of the beginning of
Sep, the occupancy rate, included committed tenancy agreements, was in the high 70s in percentage terms. As the mall is stabilising, the KJI vendor will provide a rental guarantee of ~S$1.4m per quarter for FY2013 and FY2014.
Updating our model
As to be expected, management is proposing to finance the acquisitions from the proceeds raised from the issuance of S$250m worth of notes in early Jul. Post-acquisition, the aggregate leverage will be ~22%. We assume that the proposed acquisitions will be completed on 1 Nov 2012. We also assume that additional acquisitions totaling ~S$60m closing on 1 Apr 2013 will take place to use up the remainder raised under the issuance of S$250m of notes (blended interest cost of ~5.1%).
Maintain HOLD
We maintain our fair value of S$0.45 and our HOLD rating.
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