DPU recovers. LMIR Trust posted S$18.7m in 1Q gross revenue, down 8.1% YoY and 13% QoQ. Net property income fell 9.3% YoY to S$17.5m, but registered a 41.7% QoQ improvement as 4Q NPI was hit by a S$7m provision for receivables. 4Q results were also hit by a S$3.3m write-off of fees on an unused loan facility. Consequently, distributed income rose 351% QoQ to S$14.6m, while falling 13% YoY. LMIR will pay out 1.36 S cents for the quarter versus the 0.3 S cents paid out a quarter ago. This is equivalent to an annualized yield of 22.2% on the current share price. Results were better than expected.

Casual leasing still a problem. To recap, 4Q was plagued by a few key issues: expiry and early termination of leases as well as declining other income. Last quarter's provision was on outstanding rents from wholesaler tenants or third-party agents who earn revenue from sub-leases on atrium spaces/corridor leases. These wholesalers were in arrears and had also terminated their leases. These issues flowed through to 1Q revenue as well. The manager said it is moving away from wholesale tenants to dealing directly with casual tenants. We note LMIR still has another S$19.3m in receivables, or 19% of total FY08 revenue.

Rental market is tougher. Indonesia's central bank is projecting economic growth of 3-4% in 2009, compared to growth of 6.2% a year ago. The manager said that LMIR was achieving lower rental increases on lease renewals than it had forecasted at IPO. The manager guided that the rentaloutlook for 2009 is challenging, as "retail space demand is expected to weaken and competition among landlords to intensify". We note that portfolio occupancy has fallen two quarters in a row now, to 95% from 95.7% in December. This is still higher than the 83.1% industry average (Cushman & Wakefield). Mal Lippo Cikarang saw the biggest decline, with occupancy falling 700bps to 86.6% in a space of three months.

Issue with lender. The manager warned that there is some delay in arranging the correct documentation for its S$125m loan. It is currently asking its lender for an extension - which may result in a one year reduction in loan tenure and a restructuring fee of S$1.5m. LMIR is geared at 12.3%. We have adjusted our earnings estimates but will keep a close watch on earnings stability over the next few quarters, as well as outstanding receivables. We maintain our HOLD rating and S$0.24 fair value as we track these issues.