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Lippo Malls Indonesia Retail Trust is a S$700m small-cap, real estate investment trust (REIT) based in Singapore, Singapore. REITs own and operate income-generating property and adhere to a different set of regulations. This impacts how D5IU’s business operates and also how we should analyse its stock. Below, I’ll look at a few important metrics to keep in mind as part of your research on D5IU.
View our latest analysis for Lippo Malls Indonesia Retail Trust
Funds from Operations (FFO) is a higher quality measure of D5IU’s earnings compared to net income. This term is very common in the REIT investing world as it provides a cleaner look at its cash flow from daily operations by excluding impact of one-off activities or non-cash items such as depreciation. For D5IU, its FFO of S$141m makes up 82% of its gross profit, which means the majority of its earnings are high-quality and recurring.
D5IU’s financial stability can be gauged by seeing how much its FFO generated each year can cover its total amount of debt. The higher the coverage, the less risky D5IU is, broadly speaking, to have debt on its books. The metric I’ll be using, FFO-to-debt, also estimates the time it will take for the company to repay its debt with its FFO. With a ratio of 20%, the credit rating agency Standard & Poor would consider this as aggressive risk. This would take D5IU 4.9 years to pay off using operating income alone. Given that long-term debt is a multi-year commitment this is not unusual, however, the longer it takes for a company to pay back debt, the higher the risk associated with that company.
Next, interest coverage ratio shows how many times D5IU’s earnings can cover its annual interest payments. Usually the ratio is calculated using EBIT, but for REITs, it’s better to use FFO divided by net interest. This is similar to the above concept, but looks at the nearer-term obligations. With an interest coverage ratio of 4.46x, it’s safe to say D5IU is generating an appropriate amount of cash from its borrowings.
I also use FFO to look at D5IU’s valuation relative to other REITs in Singapore by using the price-to-FFO metric. This is conceptually the same as the price-to-earnings (PE) ratio, but as previously mentioned, FFO is more suitable. In D5IU’s case its P/FFO is 4.96x, compared to the long-term industry average of 16.5x, meaning that it is highly undervalued
Next Steps:
As a REIT, Lippo Malls Indonesia Retail Trust offers some unique characteristics which could help diversify your portfolio. However, before you decide on whether or not to invest in D5IU, I highly recommend taking a look at other aspects of the stock to consider: