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Monday, 12 November 2007

Lippo-Mapletree Indonesia Retail Trust

Lippo-Mapletree Indonesia Retail Trust ("LMIR") is a retail reit that comprise of retail malls in major cities in Indonesia.

Public offer: 20m Units at $0.80 per unit.
Placement Offer: 625,469,000 Units at $0.80 per unit.

Assuming a FY2008 payout of 5.84 cents (based on its prospectus) and the IPO price of 80 cents, the yield is 7.3%

LMIR is the first indonesia retail reit offering in Singapore. The first Japanese Residential Reit "Saizen" ended more than 10% lower than its IPO on its debut, it will be interesting to see how this Indonesian Retail REIT performed. The other Indonesian-theme REIT is also by the Lippo Group and is known as First REIT but that is in the healthcare sector with higher yields.

What i think are the risks for investing in this REIT (resulting in me giving it a 1 chilli rating):
(1) Retail sector - will tie to the overall economy of Indonesia
(2) Country - High risk premium for Indonesia. Any Riots or Unrest will affect this sector greatly and you never know when the Indonesian govt may suddent change their policies etc.
(3) Forex risk - Any depreciation of Indonesia Rupiah against SG$ will be detrimental to Unit Holders.
(4) Large float - the float is very large and most likely, all the institutions who want to invest in this REIT will likely be satisfied.
(5) Weak IPO sentiments - Sentiments is hit in recent days and the market is currently not favorable to REITs.

Considering the risks above, i am not sure if the yield of 7.3% for 2008 will attract enough investors as any increase in price post IPO will most likely result in investors cashing out of LMIR and reallocating their assets into lower risk assets with better yields. I will skip this REIT since i am personally not a "REIT" person but the fact that Mapletree is in this REIT may provide some support to the share prices.


2Y Capital said...

"I'm very new to this financial industry and will be very grateful if you could give a little more explanation on point (4) below. I don't quite understand what it means =( Really appreciate it. "

Basically what i meant is that the big players who wants to buy the Trust will be able to get their placement allocation and there is no need to buy the shares from the post-ipo market and the price will not 'move up' if big players dont push up the price.

2Y Capital said...

"Just wondering, is that common to LMIR only? or is this something that happens to most REITS? or, what is it about LMIR that causes such a reaction from big players?

Hi Michelle, please ask your questions here, easier for me to reply. It depends on the size of the float and the demand for it from institutional investors. In addition, the timing is also crucial to investors. Imagine a REIT launching a REIT at the peak of the property bubble, the owners will be happy to 'cash out' at high property valuation by selling to investors but investors who bought into the REIT at that time may face a decline in value of the properties when the down cycle starts.

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