KIP REIT resilient, good time to acquire assets

  • Property
  • Monday, 07 Oct 2019

Chew: We will continue to source for yield-accretive assets.

PETALING JAYA: The manager of KIP REIT expects retail market sentiment to remain soft for the rest of the year due to economic uncertainties and the ongoing global trade tensions.

According to KIP REIT Management Sdn Bhd’s managing director Datuk Chew Lak Seong, growth is expected to be mainly driven by sustainable private consumption in the first half of 2020.

“With retail market sentiment remaining soft, KIP REIT expects the mass market segment to continue its resilience, ” he said.

Chew expected the retail mall market to take two to three years to improve as more malls open in the next few years. The effect of this is to add to the oversupply of retail space.

KIP REIT prides itself on the “community-centric” nature of its malls and their locations.

They are “strategically located over a diversified geographic range” in Tampoi, Masai, Kota Tinggi, Melaka, Senawang, Bangi and Ipoh, unlike the high concentration of malls in high-income suburban areas here and in Kuala Lumpur, he said.

“This mitigates the issue of oversupply of malls in the Klang Valley and Selangor, ” Chew said.

“Even in a downturn, consumers still need to purchase their daily necessities and weekly ‘splurges’ – which is usually in food and beverage. It is not all doom and gloom as all industries and economies face a cycle. In time, we will recover.

“It is a good time to source and acquire the right assets with the advantage of the low interest rates regime with the current overnight policy rate of 3.0%, ” Chew said.

For the financial year ended June 30, Chew said the total net yield from its KIP Malls Tampoi, Kota Tinggi, Masai, Senawang, Melaka, Bangi was 5.7%.

This net yield was calculated based on the total comprehensive income attributable to unit holders of all six properties, excluding AEON Mall Kinta which it just completed its acquisition.

AEON Mall Kinta will start contribute to KIP REIT’s net property income for financial year 2020.

The KIP Group has other privately held properties, namely, KIPMall Kota Warisan, KIPMall Desa Coalfield, Sungai Buloh. KIPMall Kuantan and KIPMall Sungai Petani, Alor Setar.

For these to be injected into the REIT, they must have a gross yield of 6.5% to 7.0%.

This gross yield is calculated based on Net Property Income of the asset acquired over the purchase consideration KIP REIT pays to acquire the asset.

The other criteria is a minimum occupancy rate of 80% before they can “reit” it.

AEON Kinta’s current gross yield is 8.3%. Its rental rate is up for a revision in September 2020. This is expected to translate to additional rental income for KIP REIT, he said.

“We will continue to source for yield-accretive assets for acquisition and assess any offers, ” he says.

KIP REIT targets to enlarge the total asset under management to RM1.5bil within the next five years.

At the moment, real estate investment trusts (REITS) are rather defensive as a result of falling bond yields.

KIP REIT’s yield of 7.2% is higher than average retail REIT peers’ of 6.2%, he said.

As at June, KIP REIT has a total asset size of about RM600mil and now the total asset value is RM819.3mil inclusive of AEON Mall Kinta City which was completed on July 31.

He said REITs typically offer shelter and outperform when there is uncertainty and slowing growth because of their defensive attributes.

The 10-year Malaysian Government Securities (MGS) yields had fallen sharply from 4.07% at end December 2018 to 3.6%. The market expects MGS yields lower for longer tracking lower global benchmark rates.

KIP REIT stands to benefit from lower interest rates as investors look for sustainable yields during uncertain market conditions.

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