KIP Real Estate Investment Trust ("KIP REIT) current dividend yield of 8.3% coupled with recent proposed acquisition of Aeon Mall Kinta City in Ipoh is deemed to offer an attractive value proposition to investors. Recommend BUY with target price of RM0.91, based on FY19 dividend yield of 7.9% premised on YTD average. 

KIP REIT's income generating portfolio consists of 5 KiP Marts which are a cross between traditional fresh market and retail outlets and a KiP Mall (shopping mall) located in Bangi. KiP Mart has a strong presence in Johor with 3 of the marts strategically located in Tampoi, Masai and Kota Tinggi. These 3 assets are contributing more than 60% of total net property income. The combined average occupancy rate of all the assets remained solid at 86.6% from a total of 947 tenants anchored by renowned retailers such as Giant Hypermarket and Mr. DIY. 

Recent proposed acquisition of Aeon Mall Kinta City is set to increase their total net lettable area from 936,000 sq ft to 1.47m sq ft. The asset has a gross yield of 7.8% with annual recurring rental income of RM16.3m. It is currently leased by AEON Co. with agreement until 2025, with an option to renew the lease for additional 5 years with a rent escalation mechanism. Hence, we believe the proposed acquisition could provide a long-term yield accretion to unitholders of KIP REIT. 

KIP REIT is currently trading above the industry dividend yield and has a distribution policy of at least 90% of distributable income. Moving forward, the distributable income is expected to grow steadily at 5% in FY19 and FY20 respectively due to its diversified portfolio and assets improvement. 

Source: Rakuten Research - 24 Sept 2018