To Close FY23 on a Strong Note

To recap, KIP REIT achieved a YoY increase of 10.1% in realised net profit for  the 9MFY23, primarily due to the reopening of the local economy and the  addition of three new industrial properties. The results were consistent with  our expectations, accounting for 70% of our full-year forecasts. The  management team holds an optimistic outlook for the REIT's 4QFY23  performance, anticipating a positive impact from increased retail footfall and  promising retail sales during the Ramadan and Hari Raya festive seasons.

Operational Performance Improved Further

During the third quarter of FY23, KIP REIT's average portfolio occupancy rate  rose to 93.2%, an improvement from 91.7% in the preceding quarter. All assets  under management achieved occupancy rates of >85%, except for KIPMall Bangi,  which is currently undergoing significant renovations. The construction progress  for this mall stands at 80%, and the management is optimistic that it will be  completed as scheduled in September 2023. Once the renovations are  concluded, the management expects the occupancy rate of KIPMall Bangi to  increase to above 90%. As of 9MFY23, KIP REIT has renewed 82% of tenancies  due in FY23, with a positive rental reversion of mid-single digits. Gearing levels  also reduced to 33.2% from 34.3% in the preceding quarter, largely attributed  to an increase in cash levels following the completion of the third and final  tranche of the private placement exercise, which raised RM22.5mn.

Set to Grow Portfolio Value to RM1.0bn by the End of 2023

The management aims to increase KIP REIT's portfolio to RM1.0bn by 1HFY24  (end CY23) from its current value of RM934mn. In order to achieve this, the  management is actively exploring opportunities for acquisitions in both the retail  and industrial sectors. Out of the four right of first refusal assets granted by KIP  REIT's promoters, KIPMall Kota Warisan has the greatest potential for injection  into the REIT due to its mature status, high occupancy rates, and stable rental  income. Aside from this, the management team holds a positive outlook for the  REIT's capacity to expand its industrial asset base and secure long-term  tenancies with stable returns, given the expected robust performance of the  industrial sector. Over the longer term, KIP REIT management team has  established a target of increasing the portfolio value to RM1.5bn by FY26.

Forecast

Maintain FY23-FY25 earnings forecasts.

Valuation

KIP REIT is currently trading at FY24f distribution yield and P/NAV of 7.7% and 0.9x, respectively, as compared to MREITs’ average forward yields of 7.0% and P/NAV of 0.9x. We maintain our Buy recommendation on KIP REIT with an unchanged target price of RM1.05, based on CY24 target yield of 6.75%.

Source: TA Research - 25 Apr 2023