Lippo Karawaci is set to sell two of its shopping malls for $92 million to Warburg Pincus's NWP Retail. (Photo courtesy of Lippo Malls Indonesia Retail Trust)

Mall Sales Mark Shift in Strategy for Lippo Karawaci

BY :FERIAWAN HIDAYAT

JANUARY 08, 2020

Jakarta. Lippo Karawaci, one of Indonesia's largest listed property companies, is set to sell two of its shopping malls for $92 million this year in a move that marks a shift in the company's strategy in managing its retail properties. 

The company's Singapore-based subsidiary Lippo Malls Indonesia Retail Trust has entered a sale and purchase agreement with Nirwana Wastu Pratama, or NWP Retail, a local property company backed by global private equity firm Warburg Pincus. Warburg is also an early investor in the country's unicorn startup Gojek Indonesia.

Under the agreement, the trust would sell Pejaten Village, a shopping mall in South Jakarta for Rp 997 billion ($72 million) or 97 million Singaporean dollars and Binjai Supermall in North Sumatra for Rp 283 billion or 27.5 million Singaporean dollars, the trust's manager LMIRT Management said in a statement on Wednesday. 

"This transaction is our inaugural divestment after the LMIRT strategy changes toward active portfolio management. In the past, LMIRT used a buy and hold strategy, which is a passive portfolio management strategy," James Liew, LMIRT Management's chief executive, said in the statement. 

Liew said the divestment would provide flexibility in terms of liquidity to invest in new assets, return cash to shareholders or explore other investment opportunities.

"Moving forward, we will continue to optimize our portfolio to maximize shareholder value. This transaction demonstrates the quality of our portfolio and strengthens the valuation of our unit prices," Liew said.

Pejaten Village's sale price was 33 percent higher from its initial acquisition price in 2012, while Binjai Supermall's sale price was 19 percent higher, Liew said. 

But the prices also represented 4.1 percent and 8.3 percent discounts, respectively, from each mall's latest valuation of Rp 1 trillion and Rp 309 billion. Those were higher than the implied discounts in the most recent net asset value of the real estate investment trust (REIT). 

Still, the transaction reflects the attractiveness of the Indonesian retail market, which is driven by strong economic growth, a rapidly growing middle class and a young demographic where more than half the population is under 30 years old.

As modern retail only accounted for 25 percent of total retail in Indonesia, shopping malls still have enormous growth opportunities. Malls in Indonesia are still experiencing substantial growth in visitor numbers, bucking the trend of online shopping.

"Retail malls will continue to be a core part of our business. We will continue to work to proactively manage our assets to increase valuations, identify investment opportunities and optimize shareholder value," John Riady, Lippo Karawaci's chief executive, said. 

With an active portfolio management strategy, REIT would be in a better position to close its valuation gap by selling assets priced attractively in the market.

"Our vision is to continue to improve strategies in our business subsidiaries to provide added value," John said.
 

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