We continue to like KIP Real Estate Investment Trust (“KIP REIT”) for its yield-accretive portfolio supported by stable income generating assets given prevailing low interest rate environment. KIP REIT is currently trading below its book value with a discount of 15%. BUY with target price of RM0.94, based on FY20 dividend yield of 7.2% premised on its one-year average yield.

To recap, KIP REIT had completed the acquisition of AEON Mall Kinta City in July last year. The accretive acquisition with annual rental income of RM16.3m and a gross yield of ~8% has contributed positively in the 1HFY20 financial results. KIP REIT current dividend yield of 7% is an attractive investment proposition vis-à-vis prevailing low interest rate environment.

Spanning across the southern and central region, KIP REIT’s asset portfolio comprises of 6 KIPMall, strategically located in suburbs targeting the middle level mass market segment. Inclusive of AEON Mall Kinta City, the asset portfolio enjoys a healthy occupancy rate of over 90% with a lettable area of 1.47m sq ft. Tenant base is well-diversified with established retail name such as Mr. DIY and Giant Hypermarket. Most of the tenants target daily needs and necessities which we believe is a strength during adverse economic conditions when consumers are more prudent in spending.

KIP REIT has established a RM2bn Medium-Term Notes Programme and subsequently made its maiden issuance of RM310m 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. Few assets under right of first refusal in the pipeline to be injected are KIPMall located at Kota Warisan, Desa Coalfield, Kuantan and Sungai Petani.

Balance sheet is healthy with gearing of 36.6%, which is below the 50% limit. Management has been consistently undertaking asset enhancement initiatives to maintain the resilient portfolio and we continue to favour KIP REIT supported by its stable income generating assets and attractive yield.

Source: Rakuten Research - 12 Mar 2020