I have 2 Indonesian REITs, both are owned and managed by the same owner, yet, their management of foreign exchange exposure could not have been more different. 

The first REIT, Lippo Malls, collects rental income in Indonesian Rupiah (IDR) while holds debts in Singapore Dollar (SGD). Thus, when IDR falls against SGD, Lippo Malls' rental income and asset value in SGD drop while the debt value stays the same. This results in a sharp fall in both distribution per unit (DPU) to shareholders and net asset value (NAV). In 4Q2013, the quarterly DPU dropped from SGD0.0074 to SGD0.0056, a fall of 24.3%. The NAV fell from SGD0.56 to SGD0.41, a larger fall of 26.7%.

Figure 1 below shows the balance sheet of Lippo Malls as at end Dec 2013. Here, it clearly shows that property valuations as represented by Non-Current Assets fell from (Read more...)