KIP REIT Buys Hypermarket in Gerik, Perak for RM14.8mn

KIP Real Estate Investment Trust (KIP REIT), through its trustee Pacific Trustees Bhd, has entered into a conditional sale and purchase agreement with Bluebros Hypermarket Sdn Bhd to acquire a single-storey hypermarket with a basement in Gerik, Perak, for RM14.8mn. The acquisition price, negotiated on a willingbuyer, willing-seller basis, reflects a slight discount of 0.1% from the RM15.0mn market value assessed by independent valuer Henry Butcher Malaysia (Perak) Sdn Bhd. The transaction is expected to be completed by 1QCY25 (or 3QFY25).

More About the Property

The hypermarket, located at Jalan Toh Syahbandar Muda 9, Gerik, Perak, is approximately one kilometre northwest of Gerik town and easily accessible via Jalan Gerik – see Appendix 1. The property, currently leased to TF Value-Mart Sdn Bhd, a prominent Malaysian hypermarket chain with 47 outlets nationwide, offers a net lettable area of 60,895 square feet and maintains a 100% occupancy rate – see Appendix 2.

Triple Net Lease with 10% Rental Reversion Every Three Years

As part of the SPA, KIP REIT will enter into a new triple net master lease agreement with TF Value-Mart, starting with a fixed three-year term. The lease includes automatic renewals for four additional three-year terms, with a rental increase of approximately 10% every three years.

Reasonable Acquisition Cost

Based on a monthly rental of RM92.6k, the property is expected to generate a yield of 7.5%, which compares favourably against KIP REIT’s existing retail portfolio yield of 7.2%. Additionally, considering the range of acquisition yields for retail malls in Malaysia acquired by listed Malaysian Real Estate Investment Trusts between 2016 and 2024, the acquisition price appears reasonable, falling within the range of 5.7% to 8.0%

Our View

This marks KIP REIT's second acquisition of 2024. With the addition of this latest property, KIP REIT's portfolio will grow to 12 assets, comprising 7 KIPMalls, AEON Mall Kinta City, and 3 industrial properties in Pulau Indah, Klang. The total net lettable area will expand from 2.08mn square feet to 2.15mn square feet. The newly acquired property will represent 1.5% of KIP REIT’s expanded retail assets, raising the total retail asset value to RM996.8mn—an increase of 1.5% from RM982mn as of 30 June 2024.

Simultaneously, KIP REIT is finalising the acquisition of D’Pulze Shopping Centre, which is expected to close by the first quarter of 2025. Announced in May 2024, this is KIP REIT’s largest acquisition since its IPO, valued at RM320mn. To fund this, the trust plans to raise up to RM146.7mn through a private placement of 180mn new units, representing 29.1% of the current fund size. Following this placement and the two acquisitions, KIP REIT’s gearing is projected to rise from 37% at the end of June 2024 to 42%.

Overall, we remain optimistic about these developments, as they support KIP REIT’s target of scaling its operations and increasing its assets under management to RM2.0bn within the next three years.

Forecast

Assuming the acquisition of the Gerik Hypermarket is completed by the end of the first quarter of 2025 (end of 3QFY25), we expect a net impact on our projected earnings of +0.3% for FY25 and +1.2% for FY26 and FY27. This is based on a 3-month earnings contribution in FY25 and a full-year contribution in FY26 and FY27. However, we will maintain our current earnings forecasts until the acquisition is completed.

Valuation

We maintain our Buy recommendation on KIP REIT with an unchanged target price of RM1.15, based on a CY25 target yield of 6.75%.

Source: TA Research - 26 Aug 2024