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Operational Gains Shock Analysts In LMIRT’s Strong 3Q 2025 · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:08
  Welcome to the Deep Dive. Today, we're digging into something that really caught
• 0:12
  our eye. If you follow the Southeast Asian retail scene.
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  Yeah, the recently released 3Q 2025 results for LMI or Trust,
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  that's Lipo Mall's Indonesia Retail Trust. Exactly.
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  And these results, well, they demand a closer look, don't they?
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  It's a classic case, really. It is.
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  Strong operations on the ground, but fighting against some serious currency headwinds. Right.
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  So our mission today is to get past those initial press release numbers.
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  We want to really dissect the financials. Understand what's actually driving
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  the performance, the operational side of things.
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  And figure out how management is navigating this, balancing those strong assets
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  against, well, some pretty real capital constraints.
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  That balancing act, that's really the core of it here, I think.
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  Okay, let's unpack this.
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  Starting, as we always do, with those headline financial figures.
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  Now, the numbers reported in SING dollars, they looked okay.
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  Okay, yeah, or maybe decent is the word they'd prefer you focus on.
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  Net property income, MPI, came in at S$31.1 million for the quarter.
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  Which is an increase year-on-year.
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  Yeah, 8.5% up year-on-year, but that's in SGD terms.
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  And, you know, 8.5% sounds all right for a REIT these days. It does sound solid.
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  But like we said, LMI or Trust...
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  It's always a currency story first, isn't it? Absolutely. You have to look past the SGD.
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  So how much did the Singapore dollar conversion actually, well,
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  drag things down this quarter?
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  Well, what's fascinating here is the performance underneath is way better than
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  that headline suggests.
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  You absolutely have to look at these results in the local currency.
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  The Indonesian rupiah, the IDR. Exactly.
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  OK, so give us that pick, the IDR view. Right. So in rupiah,
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  NPI grew by a very strong 15.2% year on year. That's IDR 395.3 billion.
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  15.2%, okay. And gross revenue, similar story. Up 14.2% year-on-year,
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  hitting IDR 656.2 billion.
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  That 15% NPI growth. That's what the team on the ground actually achieved.
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  Wow, so doing the quick math, that's roughly seven percentage points of that
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  operational strength just vanishing in the translation.
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  Pretty much, just gone when you convert it back to SGD. It's a huge erosion
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  for anyone holding units in Singapore.
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  And that's purely down to the currency movement. Entirely depreciation.
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  Over the nine months leading up to these results, the IDR weakened about 5.2%
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  against the Singapore dollar.
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  It's just the reality, the sort of unavoidable costs sometimes of tapping into
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  these higher growth overseas markets.
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  It takes what was really quite robust IDR growth and just squashes it down into
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  that moderate SGD column.
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  The assets are performing, but the currency is working against you if you're
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  looking at SGD distributions.
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  That's such a critical distinction for investors to grasp. And I suppose we
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  see the same thing playing out in the rental revenue figures. Yep.
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  Same pattern. Rental revenue was up nearly 10 percent in IDR terms.
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  Solid. But in Sing dollars. Only 3.4 percent. So again, it just proves the underlying
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  operational platform is doing its job. It's fundamentally sound.
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  OK, so if the core rental income was steady thanks to higher occupancy. Mm hmm.
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  What else drove that overall 14-15% IDR growth you mentioned?
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  Well, the sources point to three main things beyond just stable rent from higher occupancy.
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  You've got increased car park income and then a really big jump,
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  56.2% in other rental income. Again, all in IDR terms.
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  56%. But the car park income jump, that seems like the really eye-catching one.
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  It is. It went from about IDR $17.8 billion in Q3 last year to IDR $42.0 billion
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  in Q3 this year. That looks huge on paper.
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  Did shopper traffic suddenly double or something? More people parking?
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  Uh, no, not really. And this is where you have to dig into the details.
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  Otherwise, you could easily misread the situation.
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  That growth, it isn't mainly about more cars parking.
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  It's largely an accounting change. It stems from a new car park management arrangement
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  they put in place back in the second half of FY 2024.
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  A new arrangement. Explain that difference for us. What's this gross basis recognition
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  mean compared to how they did it before?
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  OK, so basically they switched how they record the income before they might
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  have reported the income net of expenses, meaning, say, the car park generated IDR 100K.
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  The operator took their IDR 80K fee and the trust reported the remaining IDR 20K profit as income.
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  Simple enough. Right. Now, under the new gross basis method,
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  they report the full IDR 100K as gross revenue.
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  Ah, right. And then they record the IDR 80K operating costs separately down
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  in the property operating expenses line.
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  Got it. So it makes the top line gross revenue number look much bigger. Exactly.
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  But the actual profit contribution from the car parks hasn't necessarily shot
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  up by the same amount because the costs are now just showing up elsewhere in the P&L.
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  Precisely. It inflates that revenue line, but doesn't inflate the profit margin
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  nearly as much. It's more like a reclassification.
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  Important to note, but it's not some operational miracle making car parks suddenly hyper-profitable.
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  Okay, that makes sense. So setting aside that car park accounting shift,
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  here's where it gets really interesting, I think.
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  When we look at the actual operational resilience...
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  The metrics that show how the malls are really doing in the market.
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  And those metrics look genuinely healthy.
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  Portfolio occupancy, for instance, held up really well at 84.4% in Q3.
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  And how does that stack up against the competition? Very favorably.
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  When you think that the broader industry average in Indonesia is hovering around, what, 77.9%?
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  Maintaining occupancy in the
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  mid-80s? That says a lot about their mall locations and the tenant demand.
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  Yeah, that high occupancy gives them good leverage, right? Especially when leases
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  come up for renewal. Seems like it.
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  They reported renewing about 75% of the leases that expired during the period.
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  That's a pretty high retention rate. And the key question at what rates?
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  Well, crucially, they managed to get a healthy 4.6% average rental reversion on those renewals.
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  Positive 4.6%. Okay. So even with economic pressures, tenants are willing to
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  pay a bit more to stay in these specific malls.
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  That's a good sign. And are people actually coming back to the malls?
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  What about foot traffic?
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  Foot traffic is up too. Overall, shopper traffic increased 4.7% for the quarter.
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  That brings the total visitors to just over 32 million people.
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  And any specific areas doing better?
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  Yeah. The Jakarta Mall seemed to be leading the recovery. They reported an 8.2%
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  increase in visitors. Interesting. So...
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  People are returning to physical retail spaces. They are. And that increase
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  in traffic, it really validates the strategy the trust has been pursuing.
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  They've been actively working to diversify their tenant mix.
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  Living towards. More towards experiential retail.
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  They're deliberately increasing the focus on F&B food and beverage,
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  which now makes up 16% of their gross revenue. Right.
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  Food courts, cafes, restaurants. Exactly. And also leisure and entertainment.
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  That's up to 9% of revenue now. Think cinemas, arcades, play areas.
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  So future-proofing the mall model, basically.
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  Less reliance on just traditional anchor stores selling goods.
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  That seems to be the plan.
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  Malls are becoming destinations again, less about just picking up staples and
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  more about dining out, seeing a movie, having an experience.
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  Okay, let's shift gears a bit. Let's talk balance sheet. Because despite these
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  pretty strong operational numbers we've just discussed, reading their commentary,
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  management seems intensely focused on capital prudence. Extreme caution almost.
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  Yes, that comes through very clearly. Why so cautious when the operations seem
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  to be recovering quite nicely?
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  It really boils down to managing their liabilities, specifically upcoming debt
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  maturities and the general need
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  to deleverage, especially in this higher interest rate world we're in now.
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  OK, what is the key stability metrics look like?
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  Gearing interest coverage? Well, they look compliant, which is important.
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  The gearing ratio is actually down a bit to 43.31%. It was closer to 44.8% at
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  the end of last year. So heading in the right direction.
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  Right. And the interest coverage ratio, the ICR, is sitting at 1.81 times.
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  That's comfortably above the regulatory minimum, which is 1.5 times.
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  OK, so if the ICR is stable above the minimum, why take the really quite drastic
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  step of withholding distributions completely, not just reducing them,
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  but stopping them? Yeah, that's the big signal of their caution.
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  It's because of those looming debt obligations and this overriding strategy
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  to build up a significant cash buffer. They are currently holding back distributions entirely.
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  To both regular unit holders and the holders of their perpetual securities. Correct.
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  Both. That's S-140 million dollars and $120 million worth of perpetual securities
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  not getting paid right now.
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  It's purely about conserving every bit of cash they can.
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  They just can't risk liquidity drying up with debt maturities on the horizon.
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  Right. So what specific debts are we talking about?
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  What's dictating this very conservative stance? Well, they have several Indonesian
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  rupiah loan facilities. They call them Facility 1, 2, and Upsize 3.
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  And these require monthly principal repayments. So that's a constant drain on
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  cash. Okay. Manageable, presumably.
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  What's the big one? The big one is the upcoming redemption of their U.S. dollar notes.
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  There's still U.S. $22.6 million outstanding on their 2026 notes,
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  and those are due in February 2026.
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  February 2026. Okay, that's not that far away in financing terms. Exactly.
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  That date requires dedicated ring-fenced capital. They need to be absolutely
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  sure they can pay that off.
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  Which explains the timing of the rights issue they launched back in September.
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  Precisely. They went to the market to raise up to S63.0 million dollars.
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  And the stated purpose was? Explicitly to repay existing loans and also,
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  importantly, to fund their ongoing asset enhancement initiatives,
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  the AEIs, those mall upgrades we were talking about earlier.
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  Right. The things needed to drive future growth. Yes.
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  So the rights issue is really a proactive move. Stabilize the capital structure now.
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  Deal with the debt so that the strong operational assets can actually deliver
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  value down the line, hopefully through distributions again eventually.
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  OK, let's pivot then towards that future outlook, because the macro picture
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  in Indonesia, it actually looks quite supportive, doesn't it?
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  Seems like there could be some significant tailwinds helping the trust hit its operational targets.
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  Yeah, the macro data coming out of Indonesia is pretty unequivocally positive
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  from the retail sector right now. Like what?
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  Indonesian GDP grew 5.1% in the second quarter of 2025, and that growth was
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  really driven by a strong household spending and robust investment.
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  And is that expected to continue?
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  Seems so. The OECD, for example, is forecasting continued GDP growth around
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  4.9% for both this year, 2025, and next year, 2026.
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  That suggests Indonesian consumers are likely to remain pretty resilient.
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  And on top of that general economic strength, the government seems to be actively
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  trying to boost spending even further. Oh, absolutely.
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  They've really put their foot down on the accelerator recently.
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  Back in September, they announced a pretty significant economic stimulus package
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  worth IDR $16.2 trillion.
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  And then even more directly aimed at consumers, they launched IDR $30.0 trillion in cash handouts.
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  Those started rolling out in
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  September and October. $30 trillion in cash handouts. Who's getting that?
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  It's targeted at about 35 million households. So it's a broad-based injection
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  of cash designed to immediately boost domestic consumption.
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  Which should, in theory, translate directly into more mall traffic and higher retail sales.
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  That's the idea. More money in people's pockets, hopefully more visits to the shops, cafes, cinemas.
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  Okay, so if those macro tailwinds are blowing strong and the government is literally handing out cash...
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  Then the trust's own micro strategy, those asset enhancement initiatives,
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  they need to be perfectly timed and targeted to capture that spending surge.
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  Exactly. The timing and execution of the AEI has become really critical.
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  So what are we seeing on that front? Are the upgrades working?
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  Well, they point to some completed AEIs that have already shown positive results,
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  things like the reconfiguration they did at Sun Plaza or strategically downsizing
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  a hypermart at Melang Town Square to create smaller, higher-rent specialty units.
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  They mentioned better tenant mixes and improved occupancy from those.
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  Okay, smaller tweaks. But the real money, including from the rights issue,
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  is going into the bigger projects, isn't it? That's right.
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  The major investment is focused on future-proofing their larger key assets.
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  Take Lipomal Nusantara, for instance. That's undergoing a massive refurbishment. How big?
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  We're talking nearly 60,000 square meters of net lettable area involved.
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  59,328 centimeters, to be precise.
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  Phase one is apparently done, but the whole thing isn't expected to be fully
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  complete until sometime in 2026. Okay, that's a huge undertaking.
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  Any others on that scale?
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  Yes, Cebuber Junction is another big one. Also a major refurbishment,
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  affecting over 34,000 square meters of NLA. And also completing in 2026.
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  Estimated completion 2026, yes. So these are significant multi-year investments.
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  They're strategically converting older retail spaces into those more modern
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  experiential hubs. Lots of F&B, leisure options.
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  Precisely the kinds of things likely to attract that stimulated consumer spending
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  we were just talking about.
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  So they're betting that these revamped spaces will command higher rents and
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  attract more foot traffic just as the macro environment hits its stride.
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  That seems to be the core strategy.
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  Renovate now to capitalize later. So if we connect this all to the bigger picture,
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  the LMIR Trust story this quarter is really one of pretty excellent operational management, right?
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  Delivering that 15% local currency growth, driven by smart strategies keeping
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  occupancy high, diversifying tenants, upgrading malls through AEIs.
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  But that operational strength is running headlong into the realities of their capital structure.
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  The need to manage currency risk, the absolute necessity of servicing those
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  debt maturities, that remains the top priority for management right now.
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  All that strong underlying performance.
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  For now, it's dedicated to shoring up the balance sheet. That really crystallizes
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  the key takeaway for you, the listener, doesn't it?
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  The trust delivered strong results on the ground, operationally sound,
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  but the financial environment, particularly their debt profile,
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  demands extreme caution.
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  That decision to halt distributions and raise cash via the rights issue.
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  Even with decent ICR metrics, it's a flashing signal.
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  Debt management and keeping the capital structure intact are absolutely non-negotiable
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  for them right now, especially with that 2026 deadline looming.
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  It really is a high-stakes balancing act, operating in a potentially high-growth
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  market but needing to be incredibly careful financially.
• 14:36
  Well, thank you for helping us
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  navigate through those complex results and connect the dots. My pleasure.
• 14:41
  Always interesting to dive into the details. And for you, the listener,
• 14:45
  here's that final provocative thought to maybe mull over.
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  Given everything we've discussed, especially the Indonesian government actively
• 14:52
  trying to boost household consumption with cash handouts and stimulus,
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  how effectively will LMI or Trust's focused investment in F&B and leisure,
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  those big AEI projects, actually capture that potential surge in consumer spending
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  over the next, say, 12 months?
• 15:07
  Will the timing work out? That's something for you to track and explore on your
• 15:11
  own. Definitely one to watch. We'll catch you on the next Deep Dive.
• 15:17
  You.