This article first appeared in The Edge Malaysia Weekly on August 5, 2024 - August 11, 2024

KIP Real Estate Investment Trust (REIT) (KL:KIPREIT) has not let its unitholders down as the money they invested has been put to good use, judging by the return on equity (ROE) the REIT has been generating.

While KIP REIT’s ROE slid from 7.48% in FY2021 to 6.99% in FY2022 and subsequently to 6.4% in FY2023, its weighted ROE over the three years came to 6.8%, topping its peers in the REIT category with a market capitalisation of under RM1 billion.

This won it the Highest Return on Equity Over Three Years award among REITs in The Edge Malaysia Centurion Club Corporate Awards 2024 for the second year in a row.

The properties in KIP REIT’s portfolio lie mostly in suburban areas across Peninsular Malaysia. As at June 2023, they comprised seven community-centric malls: six are KIPMalls located in Tampoi, Masai and Kota Tinggi in Johor, Batu Berendam in Melaka, Senawang in Negeri Sembilan and Bangi in Selangor, while one is Aeon Mall Kinta City in Ipoh, Perak.

Apart from malls, the REIT had, in 2022, expanded into the industrial subsector by adding three industrial assets located in Pulau Indah, Selangor. It bought the assets from agrochemicals company Hextar Global Bhd (KL:HEXTAR) and its major unitholder Datuk Eddie Ong Choo Meng, who holds about a 20% stake in the REIT.

These assets gave the REIT a total net lettable area (NLA) of 1.88 million sq ft as at end-June 2023, with an average occupancy rate of 92.3%.

That was before KIP REIT decided, towards the end of 2023, to acquire KIPMall Kota Warisan in Sepang, Selangor, from a company controlled by another major unitholder, Datuk Ong Kook Liong, for RM80 million in an all-cash deal. Kook Liong, who holds a 10.945% stake in the REIT, of which 10.305% is directly held, is also the managing director of the REIT’s manager, KIP REIT Management Sdn Bhd. The new asset would make up about 8.3% of KIP REIT’s enlarged portfolio.

KIP REIT, whose financial year ends on June 30, recorded a net profit (distributable income) of RM38.3 million in FY2021, up 22.8% from RM31.2 million in FY2020. In FY2022, it reported a net profit of RM37.3 million, which rose to RM38.8 million in FY2023. This works out to an adjusted compound annual growth rate of 9.4% between FY2020 and FY2023, as gross revenue went from RM74.25 million in FY2021 to RM73.7 million in FY2022 and RM83.75 million in FY2023.

The REIT attributed the increase in gross revenue to higher contribution from its retail REIT segment in FY2023, which gained RM7.24 million, or 9.8%, to RM80.94 million from RM73.70 million the year before. In FY2023, 96.6% of its gross revenue came from its retail segment, while its new industrial segment contributed 3.4%.

The REIT distributed 6.84 sen per unit to unitholders in FY2021, 6.8 sen in FY2022, and 6.2 sen in FY2023. The REIT’s distribution yield, based on its year-end unit price for FY2023, amounted to 6.9%.

In May this year, the trustee of KIP REIT, Pacific Trustees Bhd, inked a conditional sale and purchase agreement with DPulze Venture Sdn Bhd to acquire the seven-floor DPulze Shopping Centre in Cyberjaya for RM320 million cash — the REIT’s biggest acquisition since its initial public offering in February 2017.

TA Securities believes the acquisition will significantly enhance the trust’s scale and demonstrate its commitment to strengthening the resilience of its portfolio and providing long-term, sustainable income to unitholders. Post-acquisition, KIP REIT’s portfolio of assets will increase to 12, with nine retail malls and three industrial properties.

“This will result in a 30.6% increase in assets under management to RM1.36 billion, as well as a 15% increase in NLA to about 2.39 million sq ft. DPulze Shopping Centre is set to become the largest retail asset within KIP REIT’s portfolio.

“We are optimistic about this acquisition, as it aligns with KIP REIT’s goal to scale up operations and increase total assets under management to RM2 billion in the next three years,” it says.

The research house has kept a “buy” call on KIP REIT with a target price of RM1.14, based on its CY2025 target yield of 6.75%.

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