JAKARTA (TheInsiderStories) – Moody’s Investors Service has assigned a Ba3 corporate family rating (CFR) to Lippo Malls Indonesia Retail Trust (LMIRT). Moody’s also assigned a Ba3 backed senior unsecured rating to the bond issued by LMIRT Capital Pte. Ltd., a wholly-owned subsidiary of LMIRT. The bond is guaranteed by the trustee of LMIRT. The outlook is stable.
LMIRT’s Ba3 CFR reflects the trust’s established presence in Indonesia (Baa2 stable), with its portfolio of retail malls and retail spaces spread across the ten Indonesian cities and targeting the country’ growing middle-to-upper middle income consumers.
Further, the trust generates a predictable income stream from its asset portfolio, with healthy occupancy rates, well-balanced lease expiry profiles and favorable lease payment structures.
“The Ba3 CFR incorporates our expectation that LMIRT’ refinancing risk over the next 12-18 months will be adequately addressed by the trust’ proposed US dollar bond issuance,” says Jacintha Poh, a Moody’s Vice President and Senior Credit Officer in an official statement today (06/03).
As of March 31, 2019, LMIRT had a weighted average debt maturity of 2.0 years, with S$370 million of debt maturing in 2019 and 2020. Following the issuance of the proposed US dollar bond, the trust’ pro-forma weighted average debt maturity will improve to around 4.3 years.
The weighted average debt maturity does not consider LMIRT’s two perpetual securities, S$140 million callable in 2021 and S$120 million callable in 2022.
As a real estate investment trusts (REITs), LMIRT distributes the majority of its cash flows and does not retain cash to repay debt, exposing the trust to inherent refinancing risk and resulting in weak liquidity. Nonetheless, these risks are partially mitigated by LMIRT’ track record of access to funding.
“LMIRT’s rating also incorporates an expectation that there will be
reduction in the trust’s revenue exposure to the Lippo group of companies to below 25 percent, even after its proposed acquisition of Lippo Mall Puri which is scheduled to complete in the second half of 2019,” adds Poh, who is also Moody’s Lead Analyst for LMIRT.
In first quarter (1Q) 2019, LMIRT derived around 26 percent of its revenue from members of the Lippo group of companies through master lease arrangements and key tenants.
Moody’s expects LMIRT’ revenue exposure to moderate in 2020, given the expiry of the master lease agreement at Lippo Mall Kemang with PT Lippo Karawaci Tbk (B3 stable) at the end of 2019 and a reduction in the space taken by PT Matahari Putra Prima Tbk (IDX: MPPA) owing to its downsizing strategy of Hypermart.
The rating on the proposed bond is in line with LMIRT’s Ba3 CFR, as the bond is not exposed to legal or structural subordination risk. As of March, 31, 2019, 100 percent of LMIRT’s total debt was unsecured, and all debt was held at the holding-company level including the debt issued by LMIRT Capital.
The stable outlook reflects Moody’s expectation that LMIRT will continue to generate a predictable income stream from its current portfolio, supported by steady occupancy rates. Moody’s also expects the trust to refinance the majority of its debt maturing in 2019 and 2020 with the proceeds from the proposed US dollar bond.
Upward rating momentum could build if LMIRT reduces its revenue exposure to the Lippo group of companies and strengthens its credit metrics, such that adjusted net debt/EBITDA stays below 5.0x and adjusted EBITDA/interest expense remains above 4.0x on a sustained basis.
An upgrade will also require the trust to maintain adequate liquidity, with a demonstrated track record of addressing refinancing needs well in advance.
On the other hand, LMIRT’ ratings could be downgraded if the
operating environment deteriorates, leading to higher vacancy levels and declining operating cash flows or a falling asset valuations or the
trust’s credit metrics weaken, with adjusted net debt/EBITDA exceeding 6.5x or adjusted EBITDA/interest expense falling below 2.5x.
Then, if the trust fails to proactively manage its debt maturities, such that short-term debt exceeds 15 percent of total debt.
LMIRT is a real estate investment trust and has been listed on the Singapore Stock Exchange since November 2007. At Dec. 31, 2018, it had a portfolio of 23 retail malls and seven retail spaces across major cities in Indonesia, with a total appraised value of around S$1.8 billion.
LMIRT is sponsored by Lippo Karawaci, which owns an approximate 32 percent stake in the trust. LMIRT is managed by LMIRT
Management Ltd, while its properties are managed by PT Lippo Malls
Indonesia. The latter two companies are wholly-owned subsidiaries of Lippo Karawaci.
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