The all-cash deal is deemed a related party transaction as KIP REIT’s major unitholder Datuk Ong Kook Liong is also a director and major shareholder of Cahaya Serijaya.

KUALA LUMPUR (Sept 5): KIP Real Estate Investment Trust’s (KIP REIT) proposed related-party RM80 million acquisition of KIPMall Kota Warisan in Sepang is “fair, reasonable and not detrimental” to non-interested unitholders, said independent adviser Asia Equity Research Sdn Bhd (AER).

KIP REIT is purchasing the land piece together with the one-and-a-half storey commercial centre from Cahaya Serijaya Sdn Bhd.

The all-cash deal is deemed a related party transaction as KIP REIT’s major unitholder Datuk Ong Kook Liong is also a director and major shareholder of Cahaya Serijaya.

KIP REIT’s manager KIP REIT Management Sdn Bhd, where Ong is also managing director, has proposed an RM10 million private placement of up to 12.269 million units to part-fund the acquisition. Another RM47.93 million will be paid using bank borrowings, KIP REIT said.

In KIP REIT’s circular to unitholders, AER said the placement’s dilutive effect is minimal and reasonable for the advantage of a lower gearing level at 35.2% in contrast to 36.2% as at June 30, 2023, in the choice of capital mix.

It added the number of new units is “relatively small” at approximately 1.98% of the enlarged unitholders’ capital immediately after completion of the exercise.

The proposed acquisition results in earnings per unit to 10.06 sen, from 10.03 sen before the proposed placement, and dividend per unit of 6.17 sen, from 6.07 sen — both excluding the one-off expenses of the proposals.

“After having considered all the various factors included in our evaluation for the proposed acquisition and based on the information made available to us, we are of the opinion that the proposed acquisition is fair and reasonable insofar as the non-interested unitholders are concerned and it is not detrimental to the minority unitholders.

“Accordingly, we recommend the non-interested unitholders to vote in favour of the ordinary resolution pertaining to the proposed acquisition that is to be tabled at the forthcoming meeting,” AER said.

The asset would represent 8.29% of KIP REIT’s enlarged portfolio, which comprises mostly community-centric retail centres save for its recent foray into industrial properties

“Based on KIPMall Kota Warisan’s net property income from May 1, 2022 to April 30, 2023 of RM6.33 million over the purchase price, KIPMall Kota Warisan is expected to yield a rate of return of 7.91% per annum, which is higher than the average yield of KIP REIT’s other retail properties for the financial year ended June 30, 2023 of 6.54%.

“Furthermore, as KIPMall Kota Warisan is relatively new (the property is only approximately six years old), the manager expects the expenditure for maintaining or enhancing the property (estimated at RM800,000 per annum) after the proposed acquisition is completed, to be relatively low for the near future,” KIP REIT said.

The company had conducted two private placements in the past year to fund KIPMall Bangi’s facelift, and the balance would now be used to fund the proposed acquisition of KIPMall Kota Warisan.

KIP REIT units traded half a sen or 0.56% lower at 88.5 sen at noon market break, valuing the REIT at RM533.65 million.