KIP REIT’s portfolio comprises of seven community-centric KIP Malls strategically located in populated suburban areas in Johor, Negeri Sembilan, Melaka, Selangor and Perak. As at FY21, total asset under management stood at RM808m with total lettable area of 1.48m sq ft. Recently, the company proposed a private placement of up to 20% of new units which will raise up to RM80m. The proceeds will be used to acquire new assets which will bring positive growth. We expect KIP REIT to register distributable income of RM38.5m and RM43.5m for FY22-FY23 respectively. BUY with a target price of RM1.00 based on a target yield of 6% over FY22 distribution.

The nature of KIP REIT’s investment is long-term (at least five years) with focus towards community-centric malls. KIP REIT has diversified tenants to serve the mass markets selling daily necessities namely (i) Supermarket; (ii) Household products, gifts and stationery; (iii) Electrical and digital products; (iv) Furniture and show gallery; and (v) Fashion and apparel. Major tenants of KIP REIT include Giant Supermarket, Econsave, KFC, Watsons and Mr DIY to name a few.

The company proposed a private placement of up to 20% of new units which will raise up to RM80m. At the same time, KIP REIT has changed its investment policy to permit the Manager to invest into other assets such as industrial or commercial purposes including, warehousing facilities, logistic facilities and manufacturing sites. The proposed private placement will result in dilution in earnings, however, the proceeds will be used to acquire new assets which will bring positive growth thus value accretive in the future.

We believe the reopening of non-essential services under the National Recovery Plan (NRP) will be positive for KIP REIT, nonetheless the company has proven to be resilient despite the MCO 2.0 in its recent FY6/21 earnings announcement. We expect KIP REIT to register distributable income of RM38.5m and RM43.5m for FY22-FY23 respectively. Going forward KIP REIT is committed to pay at least 90% of distributable income to unit holders and we are forecasting distribution of 6.0sen for FY22 and 6.8sen for FY23 based on 95% payout ratio and enlarged share base of 606.4m shares, translating into attractive yields of 7.1% and 8.1% respectively.

Our BUY recommendation is premised on: (i) resilient earnings during economic downturn; (ii) attractive dividend yields; and (iii) diversification into other assets will bring new stream of income.

Source: Rakuten Research - 26 Aug 2021