Following KIP Real Estate Investment Trust’s (“KIP REIT”) acquisition of AEON Mall Kinta City (“AMKC”) which is to be completed by end-July 2019, we remain positive on its asset acquisition growth. BUY with a target price of RM0.94 based on FY20 dividend yield of 7.7% premised on its two-year average dividend yield.

KIP REIT’s current dividend yield of 7.2% offers an attractive value proposition especially on prevailing challenging market conditions. Inclusive of AMKC, KIP REIT’s total asset value will increase to RM849.8m with a lettable area over 1.47m square feet. AMKC has a gross yield of 7.8% with an annual rental income of RM16.3m.

Spanning across the southern and central region, KIP REIT’s asset portfolio comprises of 6 KIPMall properties, strategically located within the middle level mass market segment. Management has been consistently undertaking asset enhancement initiatives on the existing portfolio hence has been able to maintain positive rental reversions to ensure growing income to unit holders. KIP REIT is currently enjoying a healthy occupancy rate of 89% from a total of 943 tenants of which established retail names such as Mr. DIY and Giant Hypermarket are among its anchor tenants.

KIP REIT is setting up a RM2bn Medium-Term Notes Programme to undertake further investment activities. The proceeds will enable the group to better achieve its target of RM1.5bn in asset under management for the coming 5 years. We believe KIP REIT is in a positive mode of acquisition growth presently as there are few assets in the pipeline to be injected to the fund. Assets earmarked are KIPMalls located at Kota Warisan, Desa Coalfield, Kuantan, Sendayan and Sungai Petani.

Besides trading at 16.6% discount to its net asset value, KIP REIT’s yield of over 7% is above industry’s average circa 6.2%. It has a healthy balance sheet with debt-to-asset ratio of 36% post acquisition of AMKC, which is still below the 50% limit. As such, we continue to favour KIP REIT on its value accretive acquisition of stable income-generating assets.

Source: Rakuten Research - 29 Jul 2019