LMIR Trust downgraded to B-plus by Fitch, with negative outlook

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Fitch Ratings downgraded Wednesday its rating on Lippo Malls Indonesia Retail Trust (LMIR Trust) to B-plus from BB-minus, with a negative outlook as pandemic-related lockdowns spread in Indonesia, which has seen a resurgence in Covid-19 infections.

The move came after LMIR Trust’s malls in Java, Bali and Medan were ordered temporarily closed. That was likely to pull the trust’s funds from operation (FFO) fixed-charge cover to below 1.3 times, or the minimum threshold for the BB-minus rating, Fitch said in a statement.

“We do not expect the ratio will recover quickly given the ongoing pandemic-related restrictions,” Fitch said. “The negative outlook reflects the risk of further deterioration of LMIRT’s profile amid the uncertain duration of mall closures and the economic implications of the reinstated restrictions.”

Fitch noted that prior to the fresh restrictions, LMIR Trust’s performance had improved, suggesting a healthy portfolio under normal operations; first quarter results were in line with the rating agency’s forecasts.

LMIR Trust is forecast to receive guaranteed net property income of S$34 million annually for Lippo Mall Puri from the trust’s sponsor and majority unitholder, PT Lippo Karawaci, until 2024, Fitch said.

“We think Lippo has the financial capacity to provide the guaranteed rent, but there could be risk beyond 2022 depending on its ability to improve contracted sales and operating cash flow or to sell assets,” it added.