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Rating Action:

Moody's assigns Baa3 to Lippo Malls Indonesia Retail Trust

12 Jun 2015

Singapore, June 12, 2015 -- Moody's Investors Service has assigned an issuer rating of Baa3 to Lippo Malls Indonesia Retail Trust (LMIRT), a Singapore real estate investment trust which owns a portfolio of retail malls and retail space in Indonesia.

The rating outlook is stable.

This is the first time Moody's has assigned rating to LMIRT.

RATINGS RATIONALE

LMIRT's Baa3 issuer rating reflects its established presence in Indonesia, with its portfolio of 17 retail malls and seven retail spaces spread across the ten largest Indonesian cities and targeting the country's growing middle-to-upper middle income consumers.

As of 31 December 2014, LMIRT's portfolio had a combined net lettable area (NLA) of 781,622 million square meters and a total appraised value of approximately SGD1.8 billion.

No individual property in LMIRT's portfolio accounted for more than 12% of its combined NLA or contributed to more than 11% of the trust's gross rental income for the year ended 31 December 2014 (FY2014).

"In addition to having good asset and income diversification, LMIRT generates a stable and predictable income stream from its asset portfolio which has strong occupancy rates of above 90% and a favorable lease profile, including a weighted average lease expiry of 4.9 years as at 31 December 2014," says Jacintha Poh, a Moody's Assistant Vice-President and Analyst.

We expect LMIRT's portfolio occupancy rate to remain strong over the next 12 to 18 months, as its retail malls -- which are anchored by supermarkets, hypermarkets and department stores -- will continue to draw shoppers for non-discretionary spending.

LMIRT collects a three-month security deposit before the commencement of a lease and also advance rent payments equivalent to approximately 10% to 20% of the total rent for the lease upon the signing of the lease agreement.

This approach helps minimize risks due to potential rental arrears, thus enhancing cash flow stability.

The rating also takes into account LMIRT's healthy financial profile which mitigates regulatory uncertainties that may affect title and land-use rights over all its assets, as well as the wider institutional risk of operating solely in Indonesia.

As of 31 December 2014, LMIRT has an adjusted debt/total deposited assets ratio of 33% and adjusted EBITDA interest coverage of 4.0x.

We expect the trust will continue to grow its portfolio through acquisitions and its financial profile will weaken, but remain well within its Baa3 rating parameters. In FY2015, we expect LMIRT's adjusted debt/total deposited assets to remain below 40% and adjusted EBITDA interest coverage ratio to be approximately 4.0x.

We also expect LMIRT to continue using unsecured borrowings to fund new acquisitions, such that adjusted secured debt/total deposited assets will be less than 10%.

"The key risk for LMIRT is its exposure to foreign exchange volatility, but the trust tries to mitigate this risk by proactively hedging most of its cash flows via currency options," says Poh, who is also the Lead Analyst for LMIRT and other Singapore real estate investment trusts.

As of 31 March 2015, approximately 93% to 94% of LMIRT's net cash flow for all of 2015 to 2016 had been hedged into SGD.

Furthermore, LMIRT is highly exposed to the Lippo Group of companies. It is linked to PT Lippo Karawaci Tbk (LK, Ba3 stable), due to LK's role as its sponsor, property pipeline provider, REIT manager and property manager. The trust's two largest tenants -- Matahari Department Stores and Hypermart, which contributed to 19% of its FY2014 gross rental income -- are also part of the Lippo Group of companies. Although there is a strong alignment of interests between LMIRT and these companies, the trust is strictly governed on the issue of related-party acquisitions and/or transactions.

As of 31 December 2014, LMIRT had a cash balance of SGD104 million and total debt of SGD624 million. Its next debt maturity will be in July 2015 when its first tranche of SGD200 million medium-term notes matures.

Although LMIRT is exploring various funding options to refinance its upcoming debt maturity, it has demonstrated a pro-active approach to capital management, including obtaining an unsecured bridge loan facility of at least SGD200 million to eliminate near-term refinancing risk.

The rating outlook is stable, reflecting our expectation of continued predictable cash generation from LMIRT's current portfolio, driven by steady occupancy levels. We also expect the trust to maintain its financial discipline, when pursuing growth, and to keep its credit profile within targeted parameters.

Upward rating pressure is limited, given LMIRT's size relative to its regional peers and the trust's concentration in Indonesia.

On the other hand, LMIRT's rating could be downgraded if (1) the operating environment deteriorates, leading to higher vacancy levels and declines in operating cash flow, and/or (2) its financial metrics deteriorate, with adjusted debt/total deposited assets exceeding 40%, adjusted EBITDA/interest coverage falling below 3x, and secured debt/total deposited assets exceeding 15%-20% on a consistent basis.

The principal methodology used in this rating was Global Rating Methodology for REITs and Other Commercial Property Firms published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Lippo Malls Indonesia Retail Trust (LMIRT) is a real estate investment trust, listed on the Singapore Stock Exchange since November 2007. It has a portfolio of 17 retail malls and seven retail spaces located across major cities in Indonesia, with total appraised value of SGD1.8 billion as at 31 December 2014. LMIRT is sponsored by PT Lippo Karawaci Tbk, one of the largest property developers in Indonesia, which owns a 30% stake in the trust.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The following information supplements Disclosure 10 ("Information Relating to Conflicts of Interest as required by Paragraph (a)(1)(ii)(J) of SEC Rule 17g-7") in the regulatory disclosures made at the ratings tab on the issuer/entity page on www.moodys.com for each credit rating:

Moody's was not paid for services other than determining a credit rating in the most recently ended fiscal year by the person that paid Moody's to determine this credit rating.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Jacintha Poh
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Philipp L. Lotter
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's assigns Baa3 to Lippo Malls Indonesia Retail Trust
No Related Data.
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