KIP Real Estate Investment Trust (KIPREIT): Riding on Asset Growth and Rental Upside

THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY*

We came away from KIP REIT’s FY25 results briefing feeling upbeat on the trust’s near-term prospects. Key takeaways are below:

Occupancy Hits Record High

In FY25, KIP REIT’s portfolio occupancy reached an all-time high of 96.7% supported by strong tenant demand and asset resilience – see Figure 1. The standout performer was KIPMall Senawang, where the entry of ST Rosyam supermarket in September 2024 lifted the mall’s occupancy from 85.1% to 96.3%. While KIPMall Bangi was the only asset below the 90% mark at 89.8%, occupancy has since improved to 93.9% following the introduction of five pickleball courts in July. Management remains optimistic on sustaining high occupancy across all assets.

Figure 1: Portfolio Occupancy Reaches All Time High

Average FY25 = 96.7%

Source: KIP REIT

Driving Growth through AEls, Strategic Partnerships, and Acquisitions

Management remains committed to scaling up KIP REIT’s portfolio through active asset enhancement, strategic partnerships, and accretive acquisitions. At KIPMall Tampoi, enhancement works have commenced and are targeted for completion by February 2026. The upgrades will add 10,000 square feet of net lettable area and include infrastructure improvements, enhanced F&B offerings, digital integration, and sustainability features, all aimed at boosting footfall and unlocking rental upside.

Separately, in March, KIP REIT has entered into a memorandum of understanding with AEON Co (M) Bhd for the expansion of AEON Mall Kinta City in Perak. As part of the deal, AEON has renewed its lease for the existing space and will master lease the upcoming extension, reaffirming its long-term commitment to the location. Both parties are in the final stages of negotiation, with construction expected to commence soon and completion targeted for 2027.

On the acquisition front, progress is on track for three industrial assets valued at RM75.7mn. The assets in Sarawak and Johor are expected to be completed soon, while the Klang property is scheduled for completion by year-end. Meanwhile, all four retail asset acquisitions, totalling RM118mn, are on schedule to complete by September. The ongoing private placement of up to 160mn new units, targeted to raise approximately RM132mn, is also expected to conclude within the same timeframe.

Management reiterated its long-term strategy to grow assets under management from RM1.5bn to RM2.0bn by end-2027, with a clear focus on expanding both retail and industrial exposure to drive recurring income and portfolio resilience.

Strong Rental Reversion and Limited SST Impact

KIP REIT recorded a solid 7% rental reversion in FY25, underpinned by resilient leasing demand and improving tenant sentiment. Management expects this positive trend to continue into FY26, with projected reversion of 7-10%, driven by stable occupancy, rising footfall, and proactive leasing efforts. Notably, five supermarket leases are due for renewal in FY26, which could further lift rental growth, given their role as strong anchor tenants within the malls.

During the briefing, SST on commercial rentals was a common concern raised by analysts and investors. However, management believes the impact of the 8% SST is minimal, as portfolio occupancy remains strong at above 90%, footfall continues to improve, and tenant sentiment has held up well. In some cases, tenants have even prepaid up to a year’s rent in advance to manage SST exposure. Given these encouraging factors, management does not foresee SST posing any significant drag on rental reversion or leasing momentum moving forward.

Forecast

With unitholders’ approval secured and greater clarity on the timeline for the acquisition of four retail assets and the accompanying private placement, we have incorporated these developments into our earnings forecasts.

We raise our FY26 and FY27 earnings estimates by 3% and 7%, respectively, driven by stronger rental reversion assumptions and incremental contributions from the new assets. These gains are partially offset by one-off acquisition costs and higher management fees from the enlarged portfolio.

However, our FY26 and FY27 EPU and DPU forecasts are revised down by 10.4% and 10.9%, respectively, to reflect dilution from the issuance of 160mn new units, which increased the unit base by 20%.

Despite the larger unit base, we expect FY26 DPU to show slight growth over FY25, supported by a nine-month contribution from the new assets and minimal timing gap between income inflow and unit issuance. For FY27, we project a 4.5% DPU increase, driven by a full-year contribution. We also introduce our FY28 DPU forecast of 7.6 sen, reflecting 5.1% YoY growth.

Valuation

Incorporating the earnings revisions and enlarged unit base, we revise our target price to RM1.09/unit. This is based on a lower CY26 target yield of 6.5% (from 6.75%), reflecting our assumption of a lower 10-year MGS yield following the recent OPR cut. We maintain our Buy recommendation on KIP REIT.

Earnings Summary

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Sector Recommendation Guideline

OVERWEIGHT: The total return of the sector, as per our coverage universe, exceeds 12%.

NEUTRAL: The total return of the sector, as per our coverage universe, is within the range of 7% to 12%.

UNDERWEIGHT: The total return of the sector, as per our coverage universe, is lower than 7%.

Stock Recommendation Guideline

Total Return of the stock includes expected share price appreciation, adjustment for ESG rating and gross dividend. Gross dividend is excluded from total return if dividend discount model valuation is used to avoid double counting. Total Return of the sector is market capitalisation weighted average of total return of the stocks in the sector.

ESG Scoring & Guideline