KIPREIT: REIT Delivers Strong First-Half Performance, Target Price Maintained

Performance Review

A prominent real estate investment trust (REIT) has reported a robust financial performance for the first half of FY26, with its realised net profit reaching RM35.2 million. This figure represents a significant 60% year-on-year increase and falls within both the investment bank’s and consensus full-year estimates, accounting for 52% and 51% respectively. The distribution per unit (DPU) for the second quarter stood at 1.7 sen/unit, bringing the first-half DPU to 3.5 sen/unit, a 10% increase year-on-year. This performance translates into an attractive dividend yield of 7.5% based on the last closing price of RM0.935.

The strong growth was underpinned by a 49% year-on-year rise in revenue and a 50% year-on-year increase in Net Property Income (NPI), reaching RM84.2 million and RM62.0 million respectively. This impressive growth was primarily driven by enhanced contributions from its existing seven mall assets and incremental income from recently acquired properties, including DPulze Shopping Centre, TF Value Mart, KIPMall Desa Coalfields, KIPMall Kuantan, and three industrial properties located in Cheras, Bintulu, and Pasir Gudang. On a quarter-on-quarter basis, both revenue and NPI saw increases of 7% and 9%, largely due to full-quarter contributions from KIPMall Kuantan and Bintulu industrial property.

Strategic Initiatives and Future Outlook

The investment bank remains positive on the REIT’s strategic initiatives, which aim to enhance stakeholder value and expand its portfolio towards a RM2.0 billion Assets Under Management (AUM) target by the end of 2027. Expected earnings upside will be fueled by new asset additions and ongoing asset enhancement initiatives (AEIs). For instance, AEIs at KIPMall Tampoi are approximately 90% complete, with a grand opening slated for February 8, 2026. Management anticipates an overall rental income uplift of 5-10% upon completion, bolstered by broader adoption of gross turnover rent, higher parking income, and the onboarding of new tenants.

Further supporting the positive outlook is the reduction in Sales and Service Tax (SST) on rental and leasing services, which will decrease from 8% to 6% effective January 1, 2026. This change is expected to be broadly beneficial, particularly for Small and Medium Enterprises (SMEs) which form around 31% of the REIT’s tenant base and are exempted from service tax for annual sales under RM1.5 million. This policy shift is anticipated to enhance tenant affordability and strengthen the REIT’s ability to negotiate positive rental reversions, with management targeting 5-10% rental reversions in FY26. For prime assets, new tenancies could command rents 15-20% above those of previous tenants.

Investment Recommendation

Considering the solid performance and positive outlook, TA Securities maintains its “Buy” recommendation on the REIT. The target price remains unchanged at RM1.12 per unit, based on a target yield of 6.5% and an additional 3% ESG premium.