Friday, November 30, 2012

Lippo Malls Indonesia Retail Trust (LMIR Trust) to Acquire Pejaten Village and Binjai Supermall

Just received a circular dated 26 Nov 2012 from Lippo Malls Indonesia Retail Trust (or LMIR Trust) that states : "This circular is important and requires your immediate attention".  Okay.  All circulars come with that label but even though it requires my immediate attention, I am way to busy to flip through a thick circular at the end of a typical work day.

Well, I finally got some time to flip through the circular and realised that it was in relation to the following 3 items:

  • Proposed acquisition of Pejaten Village from an Interested Person;
  • Proposed acquisition of Binjai Supermall from an Interested Person; and
  • The Whitewash Resolution
Just by reading the title, a few questions started popping in my head.  They are basically:

  • Who is this Interested Person?
  • How much do these acquisitions cost and are they yield accretive?
  • What is the Whitewash Resolution?  (it almost sounds like some top secret codename for something).
A quick flip through the circular has given me the answers.

Who is this Interested Person?

Firstly, an "Interested Person Transaction" is defined in the footnotes as "a transaction between an entity at risk and an Interested Person". The properties are owned by Lippo Karawachi's subsidiaries (?).  Actually, after flipping through the document and taking a quick glance, I am not certain whether this is explicitly stated inside the document or that as an investor, I am supposed to derive that companies like Sea Pejaten Pte. Ltd is a subsidiary of LMIR's sponsor.  Or perhaps, I am just not familiar enough with legal terms like "Interested Person".  Does "Interested Person" in LMIR Trust's case specifically only referring to one single entity (i.e. Lippo Karawachi) ?

How much do these acquisitions cost and are they yield accretive?

Pejaten Village = S$95.1 million
Binjai Supermall = S$30.2 million

The average of independent valuations for Pejaten Village and Binjai Supermall are S$108.8 million and S$31.8million respectively.  So LMIR Trust is buying these two properties at a discount.  The occupancy rates of both the malls look strong at 96.3% and 91.2% respectively.

I was looking for the word "yield accretive" in the document but could not find it.  It does however state that it expects a 16.3% increase in LMIR Trust's Net Property Income.  Also, based on the pro-forma DPU and financial effects, it seems that the distribution yield will actually go down.  So these acquisitions are probably not yield accretive.  Hopefully, LMIR Trust will be able to carry out some asset enhancement initiatives to improve the yield of these properties.

On the plus side, the acquisitions are at a discount, will help enhance the earnings of LMIR Trust, are at locations with sustainable retail traffic, will increase economies of scale, and also diversify the portfolio to minimise concentration risks.

What is the Whitewash Resolution? 

The Whitewash Resolution is perhaps the most important resolution to be passed at the EGM since the purchase of the properties are conditional on this Whitewash Resolution. 

Basically, the manager is seeking approval from Independent Unitholders for a waiver their rights to receive a Mandatory Offer from the Sponsor and parties.  This is simply because the acquisition fees to be paid out the manager could possibly result in the number units held by the Sponsor and parties acting in concert with it to be above 30%.

What this means is that the Sponsor and the parties are not interested in taking over LMIR and thus do not want to make a mandatory offer as required under regulation

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