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Tuesday, 17 January 2017

(The Edge) KIP REIT eyes five more buys

Post listing acquisitions will see KiP Mart brand expand to Pahang and Kedah

KUALA LUMPUR: KIP real estate investment trust (REIT) — slated for a Main Market listing on Feb 6 — said it has a further five acquisitions in the pipeline, after its initial acquisition of five KiP Marts and one KiP Mall.

Lim Han Gie, the chief executive officer of KIP REIT Management Sdn Bhd and manager of KIP REIT, told The Edge Financial Daily in an interview that the five acquisitions comprise new KiP Marts and Malls, which are currently in different phases of construction.

“Out of the five in our pipeline, one has already been completed, which is KiP Mall Kota Warisan. The other four are all currently in different stages of construction. Some have completed piling works and others are in the process of doing earthworks,” Lim said.

The new acquisitions will see the KiP Mart brand expand to two new states, namely Pahang and Kedah.

Lim revealed that two of the new acquisitions — including KiP Mall Kota Warisan in Sepang to be launched in the second quarter of this year — will be located in Selangor, while Negeri Sembilan, Pahang and Kedah will see one new KiP Mart each.

Lim clarified that the general business model of KiP Marts and KiP Malls are the same, despite the slightly different branding.

“It’s just that we look at the location to call it either a mart or a mall. The KiP Malls are generally for city-like and urbanised areas, but the business model still remains the same, focusing on fresh market and daily essentials,” he explained.

He said construction of KiP Marts generally takes about 12 to 15 months, with the REIT acquiring new assets after a gestation period of about one to two years.

Asked on how the REIT intends to finance these acquisitions, he pointed out that KIP REIT’s gearing level is low at around 15%, compared with the market average of about 31% or the 50% limit imposed by authorities.

“We have positioned ourselves, in terms of capital structure, with an eye on future acquisitions. Our gearing is low, so we still have some headroom to raise about RM100 million to RM200 million in debt if needed,” he explained.

Currently, the KiP Mart brand is present in four states. The brand has the biggest presence in Johor with KiP Mart Tampoi, KiP Mart Kota Tinggi and KiP Mart Masai. KiP Mart is also present in Negeri Sembilan and Melaka — with one mart in each state — and KiP Mall Bangi in Selangor.

These six existing assets — which will be acquired by the REIT using its initial public offering proceeds of RM234.15 million — are enjoying an average occupancy rate of 86.8%.

KiP Mart is well known in Johor where the first KiP Mart opened in Masai in 2002. It is a one-stop community retail centre targeting the low- to middle-income group and typically features a wet market, a supermarket, merchandise and convenience stores, and a food court.

Meanwhile, KIP Group is still looking to expand the KiP Mart brand up north in Penang and Perak, as well as eastwards towards Terengganu and Kelantan, focusing on the outskirt areas.

“We find that most of the population is staying on the outskirts, although they may travel to work in the cities. That’s where they do their daily shopping — back at home.

“We look at places where the population is growing and is well supported by either commercial or industrial activities, so we create employment opportunities for the residents as well,” Lim said.

He said the REIT is confident to deliver a 6.54 sen in distribution per unit for the eight-month period ending June 30, 2017, and 6.59 sen for the financial year ending June 30, 2018 (FY18).

Based on its issue price of RM1 per unit, this works out to yield 6.54% and 6.59% respectively for FY17 and FY18.

“As I [have] mentioned, we have a unique portfolio which is something between a hypermarket and traditional wet market. We currently do not have direct competition, and we will continue to focus on daily necessities.

“Over the years, we have secured and established a certain reputation and branding in the market, and we have a following within small and medium traders. We are confident that we will be able to sustain our above-average yields and further grow in the future, in view of the new KiP Marts in the pipeline,” said Lim.

A total of 505.3 million units in KIP REIT will be issued, out of which 10.2 million units will be
opened to the Malaysian public at a retail price of RM1 per unit.