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LMIR Trust's Q2 2025 Financial Performance and Outlook · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:08
  Welcome to the Deep Dive, where we try to cut through the noise and get you truly informed.
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  Yeah. And today, staying informed, especially with financial reports,
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  can feel, well, overwhelming.
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  It really can. It's like you need a decoder ring sometimes just to figure out
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  what the numbers really mean. Yeah. But that's what we're here for. Exactly.
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  Today, we're diving deep into the latest results from LMIR Trust.
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  That's Lippo Malls Indonesia Retail Trust. Right.
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  And it's not just about spitting out figures, is it? It's about,
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  you know, understanding the story behind them. Absolutely.
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  So for anyone maybe not familiar, LMIR Trust, it's a REIT based in Singapore.
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  They own and invest in, I think, 29 retail properties, malls basically,
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  across Indonesia, a pretty diverse portfolio.
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  Yeah, quite spread out. So our mission today, our deep dive goal,
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  is pretty clear. We want to unpack their Q2 2025 results.
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  Right. Figure out the key drivers, the good and the bad, behind how they performed financially.
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  And get a sense of their outlook, you know, given everything happening with the economy.
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  Exactly. And we've got their Q2 presentation slides, the press release,
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  and the detailed results doc to work from.
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  So plenty of material to dig into. Let's start at the top, maybe.
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  Top line and bottom line numbers. Sounds good, because right away,
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  things get interesting. They do. at first glance, the gross revenue.
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  Well, it looks okay in Singapore dollars. Yeah, it's up 4.5% in Q2 2025 compared
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  to last year. Came in at $50.3 million.
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  And for the first half, up 2.9% to S100.2 million dollars.
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  So, you know, growth. But, and this is the kicker, look at it in Indonesian
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  rupiah, the IDR numbers. Ah, yes.
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  That tells a different story. A much stronger one, right? Gross revenue in IDR was up 11.3% in Q2.
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  That's Rp638.5 billion.
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  And 8.1% for the first half. So quite a gap between the SGD and IDR growth rates.
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  So what's causing that discrepancy? It's pretty crucial.
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  It really is. It boils down to foreign exchange, Forex. Right.
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  The sources point to a, what was it, 4.8% year-on-year depreciation of the Indonesian
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  rupiah against the Singapore dollar?
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  Exactly. So when they convert those stronger rupiah earnings back into Singapore dollars for reporting.
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  They look smaller, less impressive. Precisely. It really dampens the reported SGD figures.
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  And that's such a key point for anyone investing internationally,
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  isn't it? You have to look at the local currency performance to see what's actually
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  happening on the ground.
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  Absolutely. Currency swings can seriously mask or, you know,
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  inflate the underlying reality.
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  Always check the local numbers. Okay. So that Forex impact, does it ripple through
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  other parts of the results too, like rental revenue and net property income, NPI.
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  It definitely does take rental revenue and SGD, it looks stable,
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  flat basically. That's $27.1 million for Q2.
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  But in IDR? Up 6.8%. And that was driven by higher occupancy rates in the malls.
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  So again, better performance locally than the SGD number suggests.
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  What about NPI then, that core profit metric? Well, NPI and SGD actually dipped a little.
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  Down 1.0% in Q2 to $29.1 million.
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  And down 1.7% for the first half.
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  So if IDR revenues are up, why the dip in SGD-NPI?
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  Is it just Forex again? Forex is a big part of it, yeah. But it's also coupled
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  with higher property operating expenses. Oh, OK. Costs went up, too.
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  Right. But again, look at the IDR MPI. That was actually up by a healthy 5.5 percent.
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  OK, so the underlying operation in Indonesia profit-wise is improving.
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  It's just that combination of the weaker rupiah and higher costs hitting the reported SGD figure.
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  Exactly. The operational profitability is strengthening locally.
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  You just wouldn't know it from the headline SGD number alone.
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  Fascinating how that works.
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  So this currency headwind, How did it affect the value of their properties on
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  the books and the net asset value, the NAV?
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  Yeah, that follows the same pattern. The carrying value of their investment
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  properties, it decreased by about $85.3 million or 5.5% as of June 30th. That's the main reason.
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  Primarily that weaker IDR against the SGD again. It just reduces the SGD value
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  of those Indonesian assets.
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  Right, and that flows through to NAV per unit. Directly. NAD per unit dropped
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  to 5.17 cents from 5.76 cents at the end of 2024.
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  Again, largely influenced by the IDR depreciation. So the currency is definitely
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  a major challenge for the reported numbers.
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  But OK, putting the forex impact aside for a moment, what are they actually
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  doing on the ground in Indonesia?
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  How's the operational side looking? Yeah, that's where you see the positive momentum.
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  Despite the currency issues, operationally, things are improving.
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  Like what specifically?
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  Well, portfolio occupancy is a big one. it rose to 84.1% in Q2.
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  That's up from 82.2% in Q1.
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  Okay, 84.1%. How does that stack up against the wider market?
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  Pretty well, actually. It's significantly above the industry average in Indonesia,
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  which was around 77.1%. Wow, okay, so they're outperforming the average quite
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  comfortably. What do they attribute that to?
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  The reports mention disciplined portfolio management and a proactive tenant engagement strategy.
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  So basically actively working to keep tenants and fill spaces.
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  And it seems to be working. They secured nearly 16,000 square meters of new leases.
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  That's quite a bit of space. It is. Shows they're actively signing deals.
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  Another interesting point is car park income. Oh yeah.
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  What happened there? It jumped substantially. Like from IDR 17.8 billion to IDR 41.9 billion. Whoa.
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  How? It wasn't just more cars. It was a change in the management arrangement
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  for the car parks back in the second half of 2024.
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  Likely brought more of the revenue one to their books directly.
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  Ah, a structural change boosting the reported income.
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  Smart. Seems like it. An example of optimizing revenue streams.
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  And are people actually coming back to the malls? What about foot traffic?
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  Yeah, shopper traffic saw an overall increase too.
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  Up 5.1% in Q2, reaching about 33.5 million visitors. That's a lot of people.
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  Is that across the board? Mostly.
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  The breakdown's interesting. Jakarta traffic was up almost 10%.
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  Sumatra up nearly 6%. Okay, strong in the big urban centers. Right.
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  Java, excluding Jakarta, and the others category saw slight decreases.
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  The overall trend was positive. And are they changing the types of shops in
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  the malls to keep attracting people? They are.
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  There's a clear strategy to optimize the tenant mix. They're putting more focus
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  on F&B food and beverage, and also leisure and entertainment.
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  Makes sense. People want experiences, not just shopping sometimes. Exactly.
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  F&B and food courts now make up 20% of their gross revenue.
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  Fashion's at 18%. Leisure and entertainment is 7%. It's about creating destinations.
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  So lots of positive operational stuff happening, which explains that strong
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  IDR growth we talked about.
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  But what about the challenges besides the currency? You mentioned higher operating costs.
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  Yes. Those higher property operating expenses did bite into the NPI.
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  And also, those increased gross car park expenses linked to that new management setup played a role.
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  Okay. And then there are the bigger picture economic worries.
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  Definitely. The sources talk about ongoing global and domestic economic uncertainties.
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  That means, you know, persistently high interest rates still and that volatile
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  foreign exchange environment we've discussed.
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  So financing costs and currency instability are still major concerns.
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  Right. Plus, inflationary pressures from things like recent tariff changes and
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  just general geopolitical tensions, those are expected to hit the retail environment.
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  Affecting how much people can spend.
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  Exactly. It all feeds into consumer sentiment.
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  The reports explicitly state that currency volatility and subdued consumer sentiment
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  are expected to weigh on retail activity in the near term.
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  So consumers are cautious. That's always tough for retail. It is.
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  Even if you're managing your malls well, if people aren't spending freely, it's a challenge.
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  OK, so LMIR Trust is doing well operationally managing their assets.
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  But these external factors, forex, costs, cautious consumers are creating significant
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  headwinds. This sums it up pretty well. Let's shift then to their financial structure.
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  How are they managing their debt, their balance sheet, especially in this tricky environment?
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  This is obviously critical. The good news on that front is their gearing ratio
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  has actually improved slightly.
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  Oh, really? How much? It edged down to 43.86% in Q2 from 44.20% in Q1.
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  It's not a huge drop, but it shows, as they put it, sustained efforts in prudent capital management.
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  They're chipping away at leverage. Okay, that's positive. What about their ability
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  to cover interest payments, the interest coverage ratio, ICR?
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  The ICR stood at 1.53 times. And is that okay? Does it meet the requirements?
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  It does. The regulatory minimum is 1.5 times, so they're just meeting that.
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  Hmm. Cutting it a bit. Fine. Well, there's a bit more context.
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  They note that if you exclude some one-off accelerated amortization charges
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  from previous bond tenders and loan settlements. Stuff that isn't part of normal operations.
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  Right. If you exclude those, the ICR would have been higher at 1.59 times.
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  So the underlying ability to cover interest seems a bit stronger.
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  Okay, that's helpful context. What does their overall debt picture look like?
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  Total amount and when is it due?
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  Total debt was about $679.4 million as of June 30th.
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  In terms of when it's due, the near-term maturities look manageable.
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  Yeah. There's $15.5 million due in the rest of 2025 and $12.9 million in 2026.
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  That 2026 figure includes the last bit of their U.S. dollar notes about U.S.
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  $22.6 million, which matures in February 2026.
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  So not huge amounts coming due immediately. Where's the bulk of it?
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  The vast majority, $781.6 million, isn't due until beyond 2029,
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  so they have quite a long runway for most of their debt.
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  That provides significant flexibility. Now, they also made a pretty big decision
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  on distributions, didn't they? They did. A critical one.
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  They stopped paying distributions, both the unit holders and to holders of their
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  perpetual securities, back in March 2023.
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  And they're continuing that policy. Why? Yes, they are. It's all about conserving cash.
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  The stated reasons are to maintain financial flexibility, ensure they can meet
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  the monthly principal repayments on their Indonesian rupiah bank loans,
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  and save up to redeem those remaining U.S. dollar bonds when they mature.
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  So, prioritizing debt reduction and stability over immediate payouts. Exactly.
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  It's a prudent, if perhaps unpopular with income investors, move in the current climate.
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  Focus on long-term financial health. Makes sense strategically.
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  Now, I did see a note, something about the auditors mentioning a material uncertainty
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  related to going concern for the FY 2024 accounts.
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  That sounds potentially serious. What's the story there? Yeah,
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  that phrase always catches the eye. It's important to understand what it means, though.
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  The auditor's opinion itself was not modified. It wasn't a qualified opinion.
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  Okay, so not a red flag on the accounts themselves? No, but they included that
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  paragraph highlighting a material uncertainty because, at that time,
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  the trust's current liabilities exceeded its current assets.
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  Why was that? It was mainly due to some short-term IDR loans and those 2026
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  notes technically falling due within the next 12 months from that reporting
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  date. Ah, so it's about the timing of liabilities versus assets on that specific date.
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  Precisely. But the manager strongly maintains that the trust is a going concern.
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  They point to mitigating factors like positive cash flow from operations,
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  the cash they expect to receive from existing leases, and their ongoing efforts
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  to refinance or raise funds.
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  So it's a required disclosure flag about a potential short-term liquidity mismatch,
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  but management has a plan and believes the underlying business is sound. That's the gist of it.
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  Transparency about a risk, but also outlining the strategy to manage it.
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  Okay, so looking ahead then, what's the wider economic picture shaping up like
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  in Indonesia? We know consumers are cautious.
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  Yeah, the broader economy saw a bit of a slowdown.
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  Indonesia's GDP grew 4.87% in Q1 2025.
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  That sounds okay, but it was actually the slowest quarterly growth in over three years.
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  Hmm, and retail sentiment was weak. Quite subdued, yeah. Even spending during
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  the big idol fit holiday was lower than expected, despite government efforts to boost it.
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  Is the government doing anything else to try and stimulate things?
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  They are. They announced a U.S. $1.5 billion stimulus package in June,
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  and they also revised the fiscal deficit target upwards to 2.78% of GDP,
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  which gives them more room to spend. And the central bank. Any moves there? Yes.
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  Bank Indonesia cut its main interest rate by 25 basis points in July,
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  down to 5.25%. That's aimed at supporting growth. They're still forecasting
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  5% GDP growth for the whole year.
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  Seems optimistic given the Q1 slowdown.
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  It might be. And those near-term headwinds we mentioned, the currency volatility,
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  the subdued consumer sentiment, they're still expected to weigh on retail.
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  So the outlook remains, you know, uncertain.
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  Okay, so a bumpy economic road ahead potentially.
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  Given all that, what are LMIR Trust's main strategic priorities?
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  How are they navigating this?
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  Their stated focus is squarely on strengthening LMI or Trust's operational resilience,
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  basically battening down the hatches and focusing on what they can control.
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  Which means? Continuing those efforts we discussed, keeping occupancy healthy,
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  really optimizing that tenant mix with more F&B and leisure,
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  and just being very careful with their capital prudent management to try and
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  lessen the blows from the macro economy.
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  Makes sense. Focus on the fundamentals.
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  And part of that resilience is improving the actual physical assets,
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  right? These asset enhancement initiatives, the AEIs.
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  Absolutely. That's a big part of their strategy. They're actively investing
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  in upgrading their malls. Can you give us some examples of what they're doing?
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  Sure. They've got ongoing projects like reconfiguring space at Sun Plaza,
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  doing renovations and relayouts at Lippo Plaza, Echolokasari Bogor to attract
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  new tenants, and general building improvements at Estana Plaza.
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  So keeping things fresh.
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  Yeah, and adapting too. Like at Melang Town Square, They're actually downsizing
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  the Hypermart Anchor Store to create smaller specialty shop units and new mall entrances.
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  That reflects changing retail needs.
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  Interesting. So it's not just cosmetic upgrades, but strategic changes to the
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  layout and offering? Exactly. And they have more planned, too.
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  Major refurbishments and relayouts are coming for places like Gajamata Plaza.
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  Cebu Junction, Lipo Mall, New Centara, and Palming Square.
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  Any standout projects? Well, one concrete example is at Lippo Mall, New Sentara.
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  They're building a connection from the basement directly to the MRT station.
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  That's huge for accessibility.
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  Oh, definitely. That should boost football. When's that due?
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  Expected to be completed in Q3 2025, so fairly soon.
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  These AEIs are tangible investments to improve the quality and attractiveness
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  of their portfolio for the long haul. Right.
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  So, wrapping this deep dive up, it seems LR Trust's Q2 results paint a,
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  well, a complex picture. Definitely.
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  You've got clear headwinds from the foreign exchange side, no doubt about it,
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  and a generally cautious economic backdrop in Indonesia.
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  But underneath that, the operational performance, particularly when you look
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  at it in local currency, the IDR numbers for revenue and NPI,
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  the rising occupancy, it shows real resilience.
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  Yeah, there's strategic moves like the focus on tenant mix, proactive management,
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  and these asset enhancements seem to be having a positive impact on the ground
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  level. They're clearly navigating a tricky environment by focusing hard on the
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  things they can actually control.
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  While being transparent about
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  those significant external pressures hitting the reported SGD figures.
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  Which really leaves us with a key question for you, the listener, to think about.
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  Given these ongoing economic uncertainties, especially the currency volatility,
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  and LMIR Trust's clear strategy of investing in their assets while carefully
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  managing debt, how will that balance play out?
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  Yeah, how will they juggle managing those debt obligations, especially the upcoming
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  ones, with funding these improvements and driving operational growth over the next year or so?
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  And what could their experience tell us about the challenges and strategies for other retail REITs?
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  Music.