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Increase Exposure

A Lesson in Mall Management S$0.795

S$0.540

Intrinsic Value

Prev Close

Main Activities Lippo Malls Indonesia Retail Trust is a REIT that primarily holds retail malls and space in Indonesia. It aims to create value through strategic acquisitions,

asset enhancements and organic growth.

Financial Highlights (Y/E Dec)(S$m) FY10 FY11F FY12F

Gross Revenue 129.4 209.7 333.4

Net Property Inc 85.3 138.2 218.2

NPAT 110.3 200.4 285.1

EPS (S cts) 10.3 9.2 13.1

Source: SIAS Research Estimates,

Key ratios (FY11F)

PER 5.9

P/BV 0.6

ROE 14.2%

Debt/Equity 0.69

Current ratio 9.5

Source: SIAS Research Estimates

Indexed Price Chart

Green (FSSTI) White (LMIRT)

Source: Bloomberg

52wks High-Low 65.0 cents / 46.5 cents

Number of Shares 1,086.5 m

Market Capitalization S$516.10m

Analyst: SIAS Research admin@siasresearch.com Tel: 6227 2107

We paid visits to the three Lippo Malls Indonesia Retail Trust’s

(“LMIRT”) malls – Cibubur Junction, Plaza Semanggi and

Gajah Mada Plaza during our Indonesia trip to gain a better

understanding of LMIRT’s underlying assets. The assets we

visited fit in nicely with the surrounding neighborhood, offering

themselves as an ideal hangout area and a place of

convenience due to having a distinct mall concept through its

tenant mix. We maintain our Increase Exposure rating with

an intrinsic value of S$0.795.

Site Visit Summary

Malls with very distinctive feature: One of the main

observations for our trip is that the malls we visited have very

distinctive features with its tenant mix which attract

neighborhood patrons. We note that it is by no means an easy

task to maintain consistency over the tenant mix as key

tenants have got to be interested in the malls and the way

they are run.

Established network to stakeholders: We notice that

LMIRT has employed several avenues to keep patrons and

tenants updated on current mall events through newsletters

and magazines. This has helped LMIRT in generating interest

for patrons to watch out for mall events such as idol tours in

malls and store discounts.

Strong cash collection procedures for lessees in place:

Based on conversations with management, we realized that

LMIRT had adopted strict measures in handling their cash

collection such as requiring casual lessees to make payment

upfront. This will reduce the chance of bad debt happening

from lessees. As such, we appropriately adjust our bottom line

margin upwards on the expectation of lower write-off by firms.

Impressed by Plaza Semanggi’s concept: We are

impressed with the level of human traffic Plaza Semanggi is

able to generate during weekdays due to it being in a superb

location near the CBD and a university. Due to its large

carpark size, this mall turns out to be an excellent waiting spot

for office workers to avoid a peak-traffic hours.

Lippo Malls Indonesia Retail Trust

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Site Visit Summary

Figure 1: Tenant Newsletter Sample Figure 2: Casual Lessees

Visit agenda: The objective of the site visit is to better understand the

operational aspects of the firm and to get a feel on LMIRT’s mall concept.

Overall, we can see a high standard of mall management put in place in areas

of tenants and space allocation to the point where the mall has a distinctive

purpose to the neighboring community.

Casting a network to stakeholders: We noticed that LMIRT takes an active

role in getting stakeholders participation on latest mall activities through

newsletters and magazines. This is important with Indonesia’s consumer trend

following behavior where they are attracted to mall events, new shop or mall

openings. LMIRT also has a tenant newsletter on updating latest changes to the

malls such as informing them of the latest asset enhancements that they are

carrying out.

Collection System for Casual Leasing in Place: On our visit, we noticed that

the malls have large part of space delegated to casual leasing. LMIRT stated

that the malls have a formalized procedure of receiving rents two weeks upfront.

This will ultimately reduce the level of bad debts that LMIRT may face.

Mall Activities to attract patrons: The mall managers have been employing

mall activities such as idol tours and mall-wide discounts to attract patrons. As

mentioned above, this is to address the consumer trend following behavior of

Indonesians.

Source: SIAS Research

Source: SIAS Research

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Cibubur Junction

Figure 3: Location Map of Cibubur Junction

Our first stop for the visit is Cibubur Junction which is situated in the middle of

Cibubur, Jalan Jambore, East Jakarta. The mall is in close proximity to the

Jalan Tol Jagorawi highway which connects Bogor, Jakarta and Ciawi. The mall

situated in the center of middle to high end residential area.

Mall Concept: Cibubur Junction appeals largely to families, similar to the

concept of Singapore’s Jurong Point. This mall has a relatively large focus on its

anchor and specialty tenants, dedicating up to a total of 60% of the mall space

to them. For example, anchor tenant Matahari’s HyperMart is dedicated with an

estimated GFA of 8,810 sqm (close to 26% of Cibubur Junction’s total NLA).

There is also a good variety of specialty shops consisting of the fashion

(Charles and Keith) and restaurants (Steak 21, Pizza Hut, and A&W) which

complement the malls’ family theme. Alongside that, Cibubur Junction has

many casual leases with car sales being the most noticeable one during our

visit. We note that for the malls we visited, specialty tenants’ rental is

approximately three times of that of major and anchor tenants. This requires

LMIRT to optimize their tenant mix so as to generate enough human traffic by

anchor and major tenants with enough space with the rest being specialty

stores so as to achieve high rental income.

Source: SIAS Research

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Figure 4: Row of Eateries

Figure 6: Anchor Tenant HyperMart Figure 7: Specialty Stores

Figure 5: Asset Enhancement

Due to its appeal as a family weekend spending, Cibubur Junction’s human

traffic during the weekends is high with an average of 40,000 visitors*, a density

of 1.2 person per sqm on NLA. Human traffic is lesser during weekdays at

approximately 25,000 ( density of 0.74 person / sqm ). We were told that

patrons during weekdays were mostly housewives and students with the fitness

center, cinema and hypermarts being the frequented spots.

Asset Enhancement in pipeline: The mall is undergoing asset enhancement

to reconfigure the layout, creating 1,376 sqm of lettable area from 1,035 sqm

and resulting in a single corridor layout. Moving forward, the company stated

that they will consider doing some exterior repainting to improve on aesthetics

of the mall.

*Based on the mall manager’s estimates

Source: SIAS Research

Source: SIAS Research

Source: SIAS Research

Source: SIAS Research

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Plaza Semanggi

Figure 8: Location Map of Plaza Semanggi

Our next stop is Plaza Semanggi which is situated at the heart of South Jakarta,

uniquely positioned in near the intersection of two main streets - Jalan Jenderal

Sudirman and Jalan Tol Jenderal Gatot Subroto. The mall is popular with

students and working adults due it being located in the CBD area and just next

to the Atma Jaya Catholic University of Indonesia.

Mall Concept: Plaza Semanggi comprises of seven floors of retail shops and

13 levels of office space. This mall is highly popular amongst the office workers

and students, mainly due to its convenient location. If we were to compare, its

concept is very similar to our Bugis Junction where there is no lack of places to

hang out or shop at. The mall includes prominent tenants such as Centro

Department Store, Samsung, Starbucks, Giant, and Fitness First.

The CBD road traffic is also highly congested during after-office hours on

weekdays. Plaza Semanggi has capitalized on this by being a waiting area for

patrons till the traffic subsidies due to having a large carpark with 1,100 parking

lots space, offering itself as shopping cum carpark mall. The mall has an

average human traffic of 50,000 per day both on weekdays and weekends

( 0.784 person / sqm )*. We note that even though density is lower than Cibubur

Junction, the number of effective spenders should be higher.

Source: SIAS Research

Atma Jaya Catholic

University of Indonesia

*Based on the mall manager’s estimates

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Figure 11: Reallocation of tenants Figure 12: Reallocated Fitness First

Figure 9: Plaza Semanggi Entrance Figure 10: Diner and Cafe

Asset Enhancement: Plaza Semanggi is currently reconfiguring its floor 3A’s

tenants to have more cafes instead of having too many eateries. We were

shown the reallocation of Fitness First tenant to the second floor completed last

year which had been replaced shops that attract middle income spenders such

as Bata and Payless.

Source: SIAS Research

Source: SIAS Research

Source: SIAS Research

Source: SIAS Research

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Gajah Mada Plaza

Figure 13: Location Map of Gajah Mada Plaza

Our last destination was Gajah Mada Plaza, situated at the heart of Jakarta’s

Chinatown. Gajah Mada Plaza is highly accessible with it being situated near

the intersection of two main roads - Jalan Gajah Mada and Jalan Kyai Haji

Zainul Arifin. Even though being close to thirty years old, we notice that Gajah

Mada Plaza has a well-distributed mix of patrons.

Mall Concept: Gajah Mada Plaza is a convenient meet-up point for Chinese,

similar to Singapore’s People’s Park Centre with a wide selection of restaurants

and diners such as Jaco, KFC, and D’Cost etc. One of the main attractions of

this site is the Millennium International Executive Club which operates as a

restaurant during the day and as a discotheque late at night.

The mall also has a swimming pool located at seventh floor of the building.

Specialty shops for this mall consist of jewelries, spectacle, Chinese medicines

and pet shops.

Source: SIAS Research

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Figure 14: Matahari Atrium Space Figure 15: Specialty Shops Near

Entrance

Figure 16: Anchor Tenant Millennium

International Executive Club

Source: SIAS Research

Source: SIAS Research

Source: SIAS Research

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Trip Evaluation

We concluded our LMIRT visit on a positive note, being highly impressed with

(1) the operations of the malls and (2) the tenant allocations. We believe that

both of these have augmented the mall in bringing out its relevance to the

neighborhood as well as taking advantage of their spending power. We also see

the potential for higher positive rental reversion on the resulting from effective

asset enhancements moving forward.

We are maintaining our current price on LMIRT at S$0.795 with an Increase

Exposure rating. We note that LMIRT proposed a 1-for-1 rights issue this

morning. We are still reviewing the impact of this rights issue (which is subject

to an EGM to be held on 20 October 2011) on the company. The rights issue

may not necessarily be value destructive, depending on how the proceeds are

invested to raise distribution to unitholders.

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Figure 17: Dividends Discount Model

SGD($ m) FY11E FY12E FY13E

Adjusted Projected Distribution 180.3 256.6 304.1

Discounted Distribution 159 199.4 208.3

Terminal Value 1691.6 LT Growth 1.00%

Discounted Terminal Value 1158.8 Beta 0.9

Value per share (S cents) 79.5 Cost of equity 13.40% Source: SIAS Research

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Figure 18: Financial Forecast and Estimates

SGD($ m) FY09A FY10A FY11E FY12E FY13E

Gross Revenue 85.8 129.4 209.7 334.4 349.7

Property Operating Expenses -10.6 -44.1 -71.5 -116.2 -121.5

Net Property Income 75.1 85.3 138.2 218.2 228.2

Net profit after tax 39.8 110.3 200.4 285.1 337.9

EPS 3.7 10.1 9.2 13.1 15.5

Total Current Assets 132.1 130.1 375.3 334.1 290.9

Total Non-Current Assets 1056.1 1082.4 1382.3 2182.3 2282.3

Total Current Liabilities 31.5 41.0 39.4 39.8 31.4

Total Non-Current Liabilities 265.2 269.6 675.4 774.8 796.3

Total Equity 891.5 901.9 1042.8 1701.8 1745.5

Net Income Before Tax 69.1 139.7 200.4 285.1 337.9

Cash from Operating Activities 60.6 61.5 108.1 154.8 139.7

Cash from Investing Activities 1.5 -1.6 -294.8 -795.5 -96.2

Cash from Financing Activities -44.3 -59.5 305.7 562.6 -106.5

Net Effect of FX consolidation changes -0.9 -1.8 0.0 0.0 0.0

Net Cash - Opening Balance 94.5 111.3 110.0 229.0 150.9

Net Cash - Ending Balance 111.3 110.0 229.0 150.9 88.0

Trade Receivable Days 37.4 25.5 25.5 25.5 25.5

Trade Payables Days 197.3 58.6 58.6 58.6 58.6

ROE 9.1% 9.5% 14.2% 15.9% 13.2%

ROA 6.8% 7.1% 9.3% 10.2% 9.0%

Debt/Equity 33.3% 34.4% 68.5% 47.9% 47.4%

Gearing Ratio 10.5% 10.3% 22.9% 16.0% 15.6%

Current Ratio 4.2 3.2 9.5 8.4 9.3

P/E 15.0 5.4 6.0 4.2 3.5

P/B 0.7 0.7 0.6 0.7 0.7 Source: SIAS Research

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Rating Definition:

Increase Exposure – The current price of the stock is significantly lower than the underlying fundamental value. Readers can

consider increasing their exposure in their portfolio to a higher level.

Invest – The current price of the stock is sufficiently lower than the underlying fundamental value of the firm. Readers can

consider adding this stock to their portfolio. Fairly Valued – The current price of the stock is reflective of the underlying fundamental value of the firm. Readers may not

need to take actions at current price. Take Profit – The current price of the stock is sufficiently higher than the underlying fundamental value of the firm. Readers

can consider rebalancing their portfolio to take advantage of the profits. Reduce Exposure - The current price of the stock is significantly higher than the underlying fundamental value of the firm.

Readers can consider reducing their holdings in their portfolio.

IMPORTANT DISCLOSURE

As of the date of this report, the analyst and his immediate family may own or have positions in any securities mentioned herein or any securities related thereto and may from time to time add or dispose of or may be materially interested in any

such securities. Portfolio structure should be the responsibility of the investor and they should take into consideration their financial position and risk profile when structuring their portfolio. Investors should seek the assistance of a qualified and

licensed financial advisor to help them structure their portfolio. This research report is based on information, which we believe to be reliable. Any opinions expressed reflect our judgment at report date and are subject to change without notice. This

research material is for information only. It does not have regards to the specific investment objectives, financial situation and the particular needs of any specific person who may receive or access this research material. It is not to be construed as an

offer, or solicitation of an offer to sell or buy securities referred herein. The use of this material does not absolve you of your responsibility for your own investment decisions. We accept no liability for any direct or indirect loss arising from the use of this

research material. We, our associates, directors and/or employees may have an interest in the securities and/or companies mentioned herein. This research material may not be reproduced, distributed or published for any purpose by anyone without

our specific prior consent.