What Should You Consider Before Investing In KIP REIT?

KIP REIT was listed on 6 February 2017 and thus, is the latest addition of REITs to be added on Bursa Malaysia. It is a retail REIT that invests in malls which are catered to low-to-middle income shoppers in towns across Peninsula Malaysia. Presently, it has a portfolio worth RM 585 million. In this article, I’ll share 9 key things that you need to know about KIP REIT before investing.

#1: Stock Symbol

Ticker Symbol: KLSE: KIPREIT / KLSE: 5280

Market Capitalization: RM 424.5 million

Share Price: RM 0.84 (1 October 2018)

Industry: REIT

Syariah Compliant: Nope.

#2: The Business

It has six properties in its portfolio. They are:

 

1. KiP Mart Masai
   It is a leasehold retail mall located in Masai worth RM 160 million. As at 30 June 2018, it enjoys a 93.8% occupancy rate with 254 tenants. It has generated a total of RM 16.5 million in revenue and RM 12.5 million in net property income (NPI) and hence, is the largest income contributor to KIP REIT.
   
   
2. KiP Mart Tampoi
   It is a leasehold retail mall located in Tampoi worth RM 159 million. As at 30 June 2018, it enjoys a 96.4% occupancy rate with 257 tenants. In 2018, it contributed RM 16.2 million in revenue and RM 12.0 million in NPI, thus, is the second largest income contributor to KIP REIT.  
3. KiP Mall Bangi
   It is a leasehold retail mall located in Bangi worth RM 130 million which enjoys an 88.8% occupancy rate with 149 tenants as at 30 June 2018. In 2018, it contributed RM 15.1 million in revenue and RM 10.6 million in NPI, thus, is the third largest income contributor to KIP REIT.
   
   
4. KiP Mall Kota Tinggi
   It is a freehold property located in Kota Tinggi worth RM 56 million. As at 30 June 2018, it enjoys 92.7% in occupancy rate with 151 tenants. In 2018, it made RM 6.2 million in revenue and RM 3.9 million in NPI and thus, is the fourth largest income contributor to KIP REIT.
   
   
5. KiP Mart Melaka
   It is a leasehold property located in Melaka worth RM 50 million which is enjoying 70.2% in occupancy rate with 71 tenants. In 2018, this mall has contributed RM 5.7 million in revenue and RM 1.9 million in NPI. It is the fifth largest income contributor to KIP REIT.
   
   
6. KiP Mart Lavender Senawang
   It is a freehold property located at Senawang worth RM 30 million that is enjoying 80.5% in occupancy rate with 65 tenants. In 2018, this mall has contributed RM 3.2 million in revenue and RM 1.1 million in NPI. It is currently the smallest income contributor to KIP REIT.

#3: The Financials

KIP REIT has achieved stable growth in revenue, income distribution, DPU, and net asset value per unit (NAV) throughout 2018. In 2018, it has made RM 62.8 million in revenue and paid out RM 34.3 million in distributions or 6.830 sen in DPU. This is in line with KIP REIT achieving higher overall occupancy rate from 82.3% in Q1 2018 to 86.3% in Q4 2018 as a result of improved occupancy rate from KiP Marts in Masai, Tampoi, and Bangi.

Figures in RM ‘000 unless stated otherwise

Period	Q1 2018	Q2 2018	Q3 2018	Q4 2018	Total
Revenue	15,301	15,675	15,670	16,127	62,773
DI	7,580	8,753	8,847	9,095	34,275
DPU (Sen)	1.50	1.75	1.78	1.80	6.83
NAV (RM)	0.994	0.997	0.997	1.003	n/a

Note:

– DI refers to Net Income Distribution to Unitholders.

– NAV refers to Net Asset Value per unit

#4: The Balance Sheet

As at 30 June 2018, KIP REIT has RM 87.0 million in borrowings. Its gearing ratio is 14.1%. Thus, KIP REIT has a total debt headroom of RM 221 million to finance any capital expenditures or acquisition of investment properties in the future.

#5: Major Acquisition

On 28 August 2018, KIP REIT had announced its proposed acquisition on AEON Mall Kinta City Shopping Mall, Ipoh for RM 208 million. Currently, this property is being leased to a Lessee for a period of 10 years from 2015 to 2025 where it is receiving RM 16.3 million in annual rent. The completion of this transaction is expected to be in Q1 2019. KIP expects the completion of this transaction in Q1 2019.

Upon which, KIP REIT would increase its total assets from RM 616.6 million as at 30 June 2018 to RM 827.1 million. Its Net Asset Value per unit (NAV) would increase marginally from RM 1.003 to RM 1.006. The proforma DPU calculated is 7.16 sen in 2018 if the property was to be included for the year 2018.

#6: Valuation

As I write, KIP REIT is trading at RM 0.84 a unit. Here, I would prepare two calculations:

Method 1 – Exclusive of AEON Mall Kinta City:
Its NAV is RM 1.003 a unit and DPU 2018 is 6.83 sen. Thus, its current P/B Ratio is 0.84 and its gross dividend yield is 8.13%. After a deduction of 10% withholding tax for DPU declared by M-REITs, its net dividend yield is 7.32%.

Method 2 – Inclusive of AEON Mall Kinta City

Its NAV is RM 1.006 a unit and DPU 2018 is 7.16 sen. Thus, its current P/B Ratio is 0.83 and its gross dividend yield is 8.52%. After a deduction of 10% withholding tax for DPU declared by M-REITs, its net dividend yield is 7.67%.

#7: Investors’ Relation

For more information on matters related to unitholders, please contact:

Phone: +603 6259 1133 (Ms. Teng)

Email: ir@kipreit.com.my

#8: Major Shareholders

As of 10 August 2018, the list of major shareholders and their shareholdings are as followed:

– Landasan Primamaju Sdn Bhd: 14.14% (Direct)

– Dato’ Chew Lak Seong: 10.09% (Direct)

– Dato’ Ong Kook Liong: 10.04% (Direct)

– Great Eastern Holdings Ltd: 5.11% (Indirect)

VIA’s Verdict

KIP REIT has delivered consistent results over the last 4 quarters. However, the stock price had been dropping since IPO from RM 1.00 to RM 0.84.

Source: Google Finance

As a result, its P/B Ratio is 0.83 – 0.84 and the net dividend yield is 7.32% – 7.67% if one decides to invest in KIP REIT at RM 0.84. When compared to other REITs in the retail sector such as Sunway REIT, CapitaLand Malaysia Mall Trust, Pavilion REIT, and IGB REIT, the valuation figures of KIP REIT are relatively attractive.

However, the properties owned by KIP REIT are located in less prime locations as compared to the REITs above which own properties in key locations in Kuala Lumpur and Penang respectively. These properties have proven to record a lot higher and stable occupancy rates as compared to KIP REIT which has a shorter track record.

So, should I invest in KIP REIT or other retail REITs?

The decision lies in how you assess the mixture of:

1. Quality of Investment properties.  
2. Sponsor Strength  
3. Dividend Yields.

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