We came away from KIP REIT’s 1HFY24 results briefing feeling upbeat on the trust’s near-term prospects. Key takeaways are below:

Transforming Community Malls for a Vibrant, Fresh Shopping Experience

The management is committed to redefining everyday community malls, aiming to create vibrant spaces that revolutionize the local shopping experience. According to management, the imminent completion of the major Asset Enhancement Initiative (AEI) for KIPMall Bangi is expected to elevate the occupancy rate at KIP Mall Bangi to over 90%, surpassing the current rate of 81.2%. Additional AEI projects are planned for FY24, including the renovation of a new supermarket, ST Rosyam, at KIPMall Senawang, covering an expansive area of 51,000 sq ft. The renovation is slated for completion by September 2024.

Portfolio Occupancy Continue to Improve

In 2QFY24, KIP REIT achieved an unprecedented milestone with its average portfolio occupancy rate reaching an all-time high of 94.7%, a notable increase from the previous quarter’s 94.1%. The improvement in occupancy was primarily fuelled by KIPMall Kota Tinggi, where the commencement of operations by a new anchor tenant, Hwa Twai Supermarket, in August propelled the occupancy rate from 84.4% to an impressive 93.1% within the quarter. Demonstrating overall resilience, all assets under management have consistently maintained occupancy rates surpassing 90%, with exceptions noted for KIP Mall Bangi at 81.2% and KIP Mall Senawang at 85.2%. The occupancy rate at KIP Mall Bangi reflects the impact of ongoing significant renovations. On the other hand, an optimistic outlook is anticipated for KIPMall Senawang, with expectations that the occupancy rate will exceed 90%, driven by the introduction of the new supermarket, ST Rosyam, which is anticipated to occupy double the space compared to the previous tenant

KIPMall Kota Warisan to Contribute From Mid Feb Onwards

The planned acquisition of KIPMall Kota Warisan is progressing as scheduled, with all conditions outlined in the sale and purchase agreement successfully fulfilled. Management foresees the completion of this acquisition by midFebruary, marking a significant achievement for KIP REIT as it expands its assets under management beyond RM1.0bn. Following the acquisition, KIP REIT's portfolio will encompass 11 properties, comprising 8 community malls and 3 industrial properties. We are positive on this yield-accretive acquisition in light of the 7.9% net property income yield, which exceeds the average yield of 6.5% for KIP REIT's other retail properties in FY23.

Aims to Grow Portfolio Value to RM1.5bn Over the Next 5 Years

With aspirations to elevate the portfolio's value to RM1.5bn over the next five years, KIP REIT, following the injection of KIPMall Kota Warisan, retains two Right of First Refusal assets, namely KIP Mall Desa Coalfields and KIP Mall Kuantan. The management is actively pursuing strategic initiatives to nurture and enhance these assets, with intentions to inject them into KIP REIT as they mature. At the same, the management reveals their proactive pursuit of thirdparty retail assets. Furthermore, the management team is actively exploring opportunities to expand its industrial asset portfolio, aiming to secure longterm, stable tenancies through master lease agreements, leveraging the anticipated strong performance of the industrial sector.

Forecast

Maintain FY24-26 earnings forecasts

Valuation

We maintain our Buy recommendation on KIP REIT with an unchanged TP of RM1.08, based on a target yield of 6.75% to our CY24 DPU projection of 7.3sen/unit.

Source: TA Research - 2 Feb 2024