Investment Highlights

• We recently met the management of KIP Real Estate Investment Trust (KIP REIT), during which it shared the company’s plan for FY21 and beyond. We believe the company’s medium-term outlook is positive, anchored by the acquisition of AEON Mall Kinta City, Ipoh in 1QFY19. Over the past 3 years, KIP REIT has achieved a consistent occupancy rate. We value KIP REIT at RM1.00 based on a target yield of 6% over FY21 distributable income.
• A retail REIT focused on community-centric malls, KIP REIT’s portfolio comprised of seven community-centric KIP Malls strategically located in populated suburban areas in Johor, Negeri Sembilan, Melaka, Selangor and Perak (see details in Exhibit 1). As at FY20, the total asset under its management stood at RM814.8mil with a total lettable area of 1.45mil sq ft.
• The nature of KIP REIT’s investment is long term with diversified tenants that serve the mass market and sell daily necessities. Its tenants are spread across the following categories: (i) supermarket; (ii) household products, gifts and stationery; (iii) electrical and digital products; (iv) furniture and show gallery; and (v) fashion and apparel. The major tenants of KIP REIT include Giant Supermarket, Econsave, KFC, Watsons, MR. DIY and many more.
• Over the past 4 years, the occupancy rate of KIP REIT has been fairly consistent as shown on Exhibit 2. As of FY20, KIP REIT achieved an average occupancy rate of 90.7%. AEON Mall Kinta City has a 100% occupancy rate due to its master lease nature with the next rental renewal in FY25.
• KIP REIT will continue to scale up its operations and aims to enlarge its total asset under management to RM1.5bil in the next 5 years. KIP REIT has several assets in the pipeline valued at over RM700mil, namely KIPMall Sungai Petani, Kedah; KIPMall Desa Coalfield, Sungai Buloh and KIPMall Kota Warisan, Sepang in Selangor and KIPMall Kuantan, Pahang. Management indicated that future acquisitions will be funded by a combination of debt and equity, likely to be a placement of new shares.
• We expect KIP REIT to register distributable incomes of RM32.0mil, RM33.4mil and RM33.5mil for FY21–FY23 respectively. The income seems flattish for the next 3 years mainly due to the almost full capacity of its malls. Historically, KIP REIT has been paying out 100% of its distributable income. Going forward, KIP REIT is committed to pay at least 90% of its distributable income to unit holders. We are forecasting a distribution of 6.0 sen for FY21 and 6.3 sen for FY22–23 based on 95% payout ratio, translating into attractive yields of 7.3% and 7.7% respectively. We value KIP REIT at RM1.00 based on a target yield of 6% over FY21 distributable income.

Source: AmInvest Research - 6 Aug 2020