Many are open to share about their successes. 

But not so much about failures. Maybe, it is due to how we perceive the idea of success and failure. For instance, success is good and tends to ‘indicate’ that we are smart and knowledgeable. Failure is the opposite. The ones who fail may be seen as foolish and thus, can be somewhat ‘embarrassing’. 

Here, I like to do something ‘different’. 

I would like to offer an account of an investment that I have incurred a loss. The idea is to share my investment thought-process at that time and a couple of key lessons that I have acquired from this loss. Hopefully, you’re encouraged to face investment losses ‘more positively’. So, the stock that I had invested is: 

Case Study: Lippo Malls Indonesia Retail Trust (LMIRT)

The period was 2H 2017. 

At that time, I had already invested in First REIT, a SGX-REIT that owns hospitals, nursing homes, and one hotel & country club in Indonesia. I was happy with my investments in First REIT for it had delivered consistent distributions (dividends) on a quarterly basis, which was in line with my investment objectives. 

LMIRT is like a ‘sister REIT’ to First REIT. 

This is because they are both affiliated to Lippo Karawaci. So, since I’ve invested in First REIT, I’d decided to look into LMIRT. At that time, I could get access to its annual reports up till 2016 and quarterly reports up till Q2 2017. From them, I’d discovered the following: 

#1: LMIRT’s Property Portfolio 

LMIRT is a SGX-REIT that invests in retail malls in Indonesia. Since 2009, LMIRT’s portfolio has expanded from 15 malls to 28 malls in Q2 2017. The valuation had grown by 2.6x from IDR 7.1 trillion in 2009 to IDR 18.4 trillion in Q2 2017. But, as for its valuation in SGD, it grew by 1.7x from S$ 1.1 billion to S$ 1.9 billion in the same period of time. This is due to a continuous depreciation of IDR against the SGD.

Source: LMIRT

The occupancy rate for its retail malls in Q2 2017 was 94.3%. It was a reduction, if compared to data since 2009. But, I deemed it okay as it was still above 90%.

Source: LMIRT

In addition, LMIRT had 48% of its leases only to expire in 2020 and beyond. This added some ‘income predictability’ to LMIRT. 

Source: LMIRT

#2: LMIRT’s Financial Results 

LMIRT achieved a rise in revenues, net property income (NPI), and distributable income from 2009 to 2016. Its distribution per unit (DPU) had grown, from 2.95 cents in 2012 to 3.41 cents in 2016. In fact, LMIRT’s DPU had continued to grow in Q1 & Q2 2017 and thus, lifting its latest 12-Months DPU to 3.52 cents. But, in terms of its net asset value (NAV), it dropped from 59.77 cents in 2011 to 36.75 cents in Q2 2017. But, I was not concerned about that ‘drop’ as my aim is to get regular income from my investments. 

Source: LMIRT

#3: Growth Initiatives

I discovered that Lippo Karawaci, LMIRT’s sponsor, is the biggest listed company in Indonesia, where it managed 46 malls and has planned to build 40 new malls in 2016. LMIRT was granted the rights of first refusal (ROFR) to these malls. So, I was interested in the long pipeline of growth in LMIRT.

Opportunities & Risks:
After I did some due diligence, I summarised my findings as follows: 

1. LMIRT has expanded its number of retail malls in its portfolios.
2. LMIRT achieved growth in revenues, NPI, distributable income and DPU. 
3. LMIRT has a strong and reputable sponsor, Lippo Karawaci. 
4. LMIRT is driven to continue its portfolio growth in the future. 
5. LMIRT could offer a gross yield of 7%-8% a year (based on 3.52 cents in DPU).

1. Prolonged depreciation of IDR against the SGD
2. Marginal decline in occupancy rates of LMIRT’s retail malls. 
3. LMIRT reported decline in net asset value (NAV) per unit. 

At the End, I Made the Investment

I knew an investment into LMIRT does carry some fundamental risks. But yet on 8 September 2017, I decided to invest in LMIRT at 44 cents a unit. Hence, based on its latest 12-month DPU of 3.52 cents, I was expecting around 8% per year in gross yields (7+% a year in net yields). 

Shortly after, I received my first DPU at 0.86 cents, which was acceptable. But in the next few months, its stock price fell. So, I have decided to invest in LMIRT at 41.5 cents a unit on 26 January 2018. 

Thus, I had averaged down my cost to around 42.8 cents a unit. 

What Has Happened Since Then?

In 2018, the Indonesian government has imposed a 10% tax on two main items: outsourced service charges and utilities recovery charges. Also, the value of IDR had fallen by some 9% against the SGD. Coupled with higher property expenses in that period, LMIRT has recorded a sharp fall in distributable income and DPU. 

Source: LMIRT

– Red represents distributable income before I invested in LMIRT
– Green represents distributable income after I invested in LMIRT

As stated, the first DPU I received was 0.86 cents. 

Since then, the amount of DPU I received kept on declining. The lowest I gained was 0.59 cents in Q2 2018, which was 31% lower than my first DPU in Q3 2017. 

Source: LMIRT

– Blue represents distributable income before I invested in LMIRT
– Yellow represents distributable income after I invested in LMIRT

Since my investments, LMIRT’s stock price had continued to drop. Finally, I have decided to sell off LMIRT at 30 cents a unit on 15 August 2018. Thus, I realised a 30% capital loss from this investment. I sold off the REIT as I couldn’t see ‘a way back’ in terms of its profitability and DPU for the REIT in the long-term. 

What if I Choose Not to Sell Off LMIRT?

After all, who knows? 

Perhaps one day, won’t it recover back to 40-45 cents per unit? 

Well honestly, I believe that in order for LMIRT to recover, it has to first work on its fundamental qualities. For myself, I had made the mistake of ignoring quite a number of ‘facts’ when I invested in LMIRT. I compromised on my principles as I was greedy for yields and I was punished for it. So on 15 August 2018, I decided to own up to my own mistake and exited this investment. I cut my losses. 

If I continue to hold on, today, I would have incurred 90+% capital loss as LMIRT had dropped to only 3 cents a unit. This is in line with a 90% drop in DPUs since Q2 2017. Even if I collected all of the DPUs from 2018-2022, I would still failed to recover back my investment capital. 

Source: LMIRT

– Blue represents DPU before I invested in LMIRT
– Yellow represents DPU during the time I was a unitholder of LMIRT
– Red represents DPU after I sold off my unitholdings at LMIRT

Source: Google Finance

Conclusion: Key Takeaways from My Investments in LMIRT

Personally, LMIRT was a bitter pill for me to swallow. But, it is a necessary one. I am thankful that I went through this as I have gained the following lessons: 

1. Never compromise on a stock’s fundamental qualities. 
2. Stocks that pay 8% yields aren’t necessarily better than ones that pay 4%. 
3. Keep stock wealth in currencies that are stabler. 
4. When mistakes are made, don’t hesitate to own it up and cut losses. 
5. Best way to recover ‘losses cut’ is to reinvest its capital into better stocks. 

Ever since, I kept focusing on improving the fundamental quality of stocks in my portfolio. As a result, my investment returns improved. Today, I had made many decent investments that pay rising dividends year-after-year. But all these could be attributable to the 5 lessons learnt from a bad investment made in LMIRT. 

That is it for now. 

For those who want to learn how to invest better and avoid the mistakes, which I made in the past, like the above, you may check out a free training session: 

Link: How to Build a Stock Portfolio That Pays Increasing Dividends?

Ian Tai
Ian Tai

Financial Content Machine. Dividend Investor. Produced 500+ Financial Articles featured in in Malaysia and the Fifth Person, Value Invest Asia, and Small Cap Asia in Singapore. Regular Host and Presenter of a Weekly Financial Webinar with Co-Founded, an online membership site that empowers retail investors to build a stock portfolio that pays rising dividends year after year in Malaysia and Singapore.

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