In this briefing:
- Lippo Malls REIT – Acquisition of Lippo Mall Puri Announced. Dilutive Rights Issue Coming.
- Bharti Infratel: Bad News Largely in the Price Now. Upgrade to Neutral
1. Lippo Malls REIT – Acquisition of Lippo Mall Puri Announced. Dilutive Rights Issue Coming.
Lippo Malls Indonesia Retail Trust (LMRT SP) (“LMIRT”) today announced the acquisition of Lippo Mall Puri from its sponsor PT Lippo Karawaci Tbk for a consideration of Rp.3,700.0 bil (S$354.7 mil).
There is a significant amount of vendor support provided by Lippo Group to improve the net property income and NPI yield of Lippo Mall Puri. If we exclude the vendor support from the target NPI, the NPI yield excluding vendor support will just be 6.52% per annum.
The transaction is DPU and yield dilutive. The resultant DPU post-transaction will decline from 2.05 S-cents to 1.61 S-cents / 1.42 S-cents. Distribution yield will also fall from 10.25% to 9.28% / 8.85% based on TERP.
The transaction could also potentially result in LMIRT’s gearing increasing from 34.6% to 39.0% which will worsen its balance sheet strength and credit standings.
In view of the unattractive acquisition and potential EFR dilution, investors should avoid LMIRT for now and wait for opportunity to enter with a greater margin of safety.
2. Bharti Infratel: Bad News Largely in the Price Now. Upgrade to Neutral
Following three years of share price declines, Chris Hoare has started to moderate his negative view on Bharti Infratel (BHIN IN). Our thesis, that Infratel would struggle as the market consolidated to three players, has largely played out. We remain wary of the viability of Vodafone Idea (IDEA IN) at current tariff levels but the ongoing capital raising at IDEA puts off the day of reckoning, while IDEA’s exit penalties (as they consolidate with Vodafone) are being paid quarterly which will flatter revenues/cash flow. We think earnings forecasts have probably bottomed for the time being and raise our recommendation to Neutral and upgrade our price target to INR270 (from INR220).
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