Analysis of LMIR - Divestment. What do they do with the cash?

Current Price on 31st Dec 2019 = $0.225

Estimated Data after Divestment

• Yield = 8.96%  
• Price-to-book Ratio = 0.721
• Assets per unit = $0.725
• Debt per unit = $0.413 (including current liabilities, perpetual securities and non-controlling interest)
• Gearing = 57% (Classifying perpetual securities as debts)
• Secured NAV = $0.312 (137% of trading price)

LMIR has recently announced that they plan to sell two of their malls at a discount to their NAV. Both their NAV and their Yield fell which is quite natural actually because of their assumption of placing the $120 million in fixed deposits which definitely will lower the yield. Above is the estimate of how it will look like after the sale.

I think the key is how they are going to use this cash of S$120 million to enhance the portfolio. In my opinion, they should focus on paring down debt of swapping some of their debts with cheaper loans. They have quite a lot of debts where their debt interest is very high at around 5% to 7%. Even margin accounts have lower interest rates. I guess the reason why they still take the loans is because their property yield is even higher at around 9%. I think they will use some of the proceeds to pay off a $75 million debt which is due in June 2020 (at 4.1%) but that is a relatively cheaper loan.

However, there is also another acquisition that is upcoming which requires cash. The property yield of that is 9.4% which is very high. Thus, if they deploy this cash to invest might still be a good idea. The only issue is that their gearing would still be very high.

This is a high risk REIT with high property yield and high debt interests as well. I am vested with 180,000 shares at about $40,000. As long as they can maintain their property, as much as possible pare down their debts to reduce their gearing, it is still worth to consider investing.