LIPPO-MAPLETREE - Lippo Malls Indonesia Retail Trust - Investor ...

Risk factorsFactors that affect shoppers’ volume at the Retail Spaces and, thereby, the ability of the Master Lessee tomeet its obligations include, but are not limited to:• the financial position of the Master Lessee;• unemployment levels in Indonesia;• the local economies;• seasonal retail cycles;• local retail competitors and competition in the retail industry;• the Master Lessee’s ability to attract and retain successful tenants;• unfavourable publicity;• material losses in excess of insurance proceeds;• a possibility of union activities disrupting the operations of the Retail Spaces, severely impacting on itsreputation and ability to function normally;• social unrest; and• natural disasters.There can be no assurance that the Master Lessee will have sufficient assets, income and access tofinancing in order to enable it to satisfy its obligations under the respective Master Lease Agreement.The Master Lessee may not renew its leases of the Retail Spaces.No assurance can be given that the Master Lessee will exercise any option to renew its leases of the RetailSpaces upon the expiry of the initial 10-year term of the Master Leases. If the Master Leases are notrenewed, LMIR Trust may not be able to find a suitable purchaser of the Retail Spaces or a suitablereplacement master lessee, as a result of which LMIR Trust may lose a significant source of revenue. Inany event, it may not be possible to replace the Master Lessee immediately upon the expiry of the MasterLeases and this may lead to temporary vacancy.The failure to renew the Master Lease Agreements, or the termination of any of these Master LeaseAgreements, may have a material adverse effect on LMIR Trust’s Gross Revenue.The Master Lessee may terminate its leases of the Retail Spaces due to change in law.Under the Master Lease Agreements, the Master Lessee is entitled to terminate the leases if, as a result ofany change in the laws or regulations, it is prohibited from carrying out its current operations at the RetailSpaces. In the event of such termination, the security deposit of the Master Lessee will be forfeited to thelandlord but no compensation is payable by the Master Lessee.The termination of the leases will have a material adverse effect on LMIR Trust’s Gross Revenue.The loss of key tenants of any of the Retail Malls or a downturn in the businesses of any ofthe Retail Malls’ key tenants could have an adverse effect on LMIR Trust’s financial conditionand results of operations.Based on Committed Leases as at 30 June 2007, the 10 largest tenants of the Retail Malls (in terms of theircontributions to the total Gross Rent) accounted for approximately 37.5% of the total Gross Rent of theRetail Malls.LMIR Trust’s financial condition and results of operations and ability to make distributions may beadversely affected by the bankruptcy, insolvency or downturn in the businesses of one or more ofthese tenants, as well as the decision by one or more of these tenants not to renew its lease or to terminateits lease before expiry. The Manager expects that LMIR Trust will continue to be dependent upon thesetenants for a significant portion of its Gross Revenue. There is a risk that an anchor tenant terminates itslease or does not renew its lease at expiry. It may not be feasible to operate such large-scale retail malls inIndonesia without an anchor tenant. It may be difficult to secure replacement tenants at short notice or on66