LMIRT’s latest acquisition costs more than its market cap and is probably not accretive

As at Aug 31, Lippo Mall Indonesia Retail Trust’s market capitalisation stood at a shade below $340 million. Also on Aug 31, the REIT manager made a bold announcement of an acquisition - to be sure its new flagship property - that bears a total cost of more than the REIT’s market cap.

Specifically, on Aug 31, LMIRT’s manager announced announced the proposed acquisition of Lippo Mall Puri for the equivalent of $330 million. The total cost to LMIRT’s unitholders will be $391 million comprising the Purchase Consideration of Rp.3,500.0 billion (approximately $330.2 million); Value Added Tax (Pajak Pertambahan Nilai) of Rp.350.0 billion (approximately $33.0 million); the Land and Building Acquisition Tax (Bea Perolehan Hak Atas Tanah dan Bangunan) of Rp.175.0 billion (approximately $16.5 million); and the estimated professional and other fees and expenses of approximately $11.3 million to be incurred by LMIR Trust in connection with the Acquisition.

The acquisition is likely to be funded by a combination of debt and equity. Debt financing of $120 million will comprise a combination of bank debt and up to $40 million of debt from the vendor, which is a unit of Lippo Karawaci, LMIRT’s sponsor. The rest of the cost would be funded by a rights issue which would $280 million.