Review

• KIP REIT’s 1QFY25 realised net profit of RM10.1mn (-3% YoY, -16% QoQ) was within expectations, accounting for 21% of our full-year forecasts.

• 1QFY25 distribution per unit (DPU) stood at 1.52sen (-2% YoY). Based on the last closing price, this translates to a 6.5% annualised dividend yield.

• KIP REIT’s 1QFY25 revenue rose 19.4% YoY to RM26.7mn, driven by 19.0% growth in the retail segment, which accounted for 94.0% of total revenue. This performance was mainly attributed to higher occupancy rates across retail properties and income contributions from the newly acquired KIPMall Kota Warisan. Additionally, AEON Mall Kinta City posted stronger revenue following a key tenant renewal. The industrial segment also performed well, with revenue increasing by 23.1% YoY, further boosting overall results.

• However, 1QFY25 realised net profit fell by 3% to RM10.1mn, impacted by a 20% YoY increase in operating expenses, as well as higher management fees (+84% YoY) and borrowing costs (+34% YoY). The rise in borrowing costs was mainly due to loan drawdowns for deposit payments related to the acquisitions of DPulze Shopping Centre (DPulze), four industrial properties from Hextar (Hextar properties), and TF Value Mart in Gerik. Besides that, increased management fees, driven by higher charges from service providers, trustees, and consultants, along with additional manpower requirements for acquisition activities, also contributed to the rise in operating costs.

• QoQ, KIP REIT’s 1QFY25 realised net profit fell by 16%, primarily due to an 18% decline in revenue, driven by lower performance in the retail segment.

Impact

• Maintain earnings forecasts.

Outlook

• To recap, KIP REIT announced several acquisitions this year, including DPulze, Hextar properties, and TF Value Mart, with a total purchase consideration of RM433.1mn. To partially fund the DPulze acquisition, the trust also plans to undertake a placement of 180mn new units, raising up to RM172.3mn. We are optimistic about these acquisitions, as they align with KIP REIT’s strategy to expand operations and increase total assets under management from the current RM1.06bn to RM2.0bn within the next three years. The acquisitions of DPulze and TF Value Mart are both expected to be completed by 1Q2025. Meanwhile, the industrial property acquisitions are anticipated to conclude between June 2025 and 1H2026.

Review

• KIP REIT’s 1QFY25 realised net profit of RM10.1mn (-3% YoY, -16% QoQ) was within expectations, accounting for 21% of our full-year forecasts.

• 1QFY25 distribution per unit (DPU) stood at 1.52sen (-2% YoY). Based on the last closing price, this translates to a 6.5% annualised dividend yield.

• KIP REIT’s 1QFY25 revenue rose 19.4% YoY to RM26.7mn, driven by 19.0% growth in the retail segment, which accounted for 94.0% of total revenue. This performance was mainly attributed to higher occupancy rates across retail properties and income contributions from the newly acquired KIPMall Kota Warisan. Additionally, AEON Mall Kinta City posted stronger revenue following a key tenant renewal. The industrial segment also performed well, with revenue increasing by 23.1% YoY, further boosting overall results.

• However, 1QFY25 realised net profit fell by 3% to RM10.1mn, impacted by a 20% YoY increase in operating expenses, as well as higher management fees (+84% YoY) and borrowing costs (+34% YoY). The rise in borrowing costs was mainly due to loan drawdowns for deposit payments related to the acquisitions of DPulze Shopping Centre (DPulze), four industrial properties from Hextar (Hextar properties), and TF Value Mart in Gerik. Besides that, increased management fees, driven by higher charges from service providers, trustees, and consultants, along with additional manpower requirements for acquisition activities, also contributed to the rise in operating costs.

• QoQ, KIP REIT’s 1QFY25 realised net profit fell by 16%, primarily due to an 18% decline in revenue, driven by lower performance in the retail segment.

Impact

• Maintain earnings forecasts.

Outlook

• To recap, KIP REIT announced several acquisitions this year, including DPulze, Hextar properties, and TF Value Mart, with a total purchase consideration of RM433.1mn. To partially fund the DPulze acquisition, the trust also plans to undertake a placement of 180mn new units, raising up to RM172.3mn. We are optimistic about these acquisitions, as they align with KIP REIT’s strategy to expand operations and increase total assets under management from the current RM1.06bn to RM2.0bn within the next three years. The acquisitions of DPulze and TF Value Mart are both expected to be completed by 1Q2025. Meanwhile, the industrial property acquisitions are anticipated to conclude between June 2025 and 1H2026.

• Management remains optimistic about KIP REIT’s prospects, citing solid performance from the existing property portfolio, ongoing leasing, and operational improvements. Additionally, management is committed to disciplined capital management and aims to deliver sustainable returns to unitholders. With a focus on acquiring accretive assets and exploring growth opportunities in both the retail and industrial sectors, management believes the REIT is well-positioned to achieve long-term value and capitalise on emerging opportunities.

Valuation

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

Source: TA Research - 22 Oct 2024