KUALA LUMPUR (Aug 29): KIP Real Estate Investment Trust (KIP REIT) is buying the Aeon Mall Kinta City, a four-storey building, 60,230 sq m property in Jalan Teh Lean Swee, Ipoh, Perak for RM208 million cash.
KIP REIT said the proposed acquisition is in line with its investment strategy and is expected to provide long-term yield accretion to the unitholders of the trust, as the rental yield for the mall has been contracted until 2025.
In a filing with Bursa Malaysia today, KIP REIT said it has accepted the offer letter from Pacific Trustees Bhd, as trustee of the REIT, for the proposed acquisition.
The property has a freehold commercial land title and is currently used as a shopping mall. The 21-year-old building has a total lettable area of 530,181 sq ft and has a valuation of RM220 million based on the valuation performed by C H Williams Talhar & Wong Sdn Bhd on Aug 17, 2018 and a net book value of RM253 million as at Dec 31, 2017.
KIP REIT said the property is currently 100% leased by a master tenant, AEON Co (M) Bhd, and has an annual rental of RM16.31 million, which translates to a gross yield of 7.8% based on the purchase consideration of RM208 million.
The lease is for a period of 10 years from Sept 29, 2015 to Sept 28, 2025, with the option to renew the lease for an additional period of five years. The lease agreement with AEON Co will be novated to KIP REIT.
"The long-term lease secured with the AEON Co will provide a stable source of income for the fund. Furthermore, the lease has a rent escalation mechanism," said KIP REIT.
The trust noted that the owner of the property, Kinta City Sdn Bhd, has also recently enhanced the property, spending over RM32 million in the past two years. The ultimate holding company of Kinta City is PGIM Real Estate Asia Retail Fund Ltd, a global real estate fund with US$70 billion in assets under management in the Americas, Europe and Asia-Pacific.
"(We) expect that the expenditure for maintaining or enhancing the property after the proposed acquisition is completed, will be relatively low given the recent enhancements," added KIP REIT.
KIP REIT said the proposed acquisition is expected to be funded by bank borrowings and/or internal funds.
Still, the proposed acquisition is subject to the approval from the unitholders of KIP REIT and the Perak state authority. However, it is hoped that the deal will be completed in the first quarter of 2019.
"Upon completion of the proposed acquisition, KIP REIT’s total asset under management will increase from RM616.2 million as at June 30, 2018 to RM827.1 million and the total net lettable area will increase from 936,000 sq ft to 1.47 million sq ft," it added.
In a separate statement today, KIP REIT Management Sdn Bhd managing director Datuk Chew Lak Seong said the company has been searching for the right asset to acquire, meeting various parties and tirelessly negotiating for the right acquisition price.
"We are confident that this asset with its gross yield of 7.8% and with a 100% master lease agreement with AEON Co until 2025, with an option to renew the lease, and with a rent escalation mechanism is the perfect fit for KIP REIT," he added.
Chew noted that the location of Aeon Mall Kinta City is also in line with KIP REIT’s vision of having a geographically diversified portfolio of assets to reduce risk as the trust’ current portfolio of assets is in Johor, Negeri Sembilan, Melaka and Selangor.
"Overall, we are confident that the proposed acquisition will be beneficial for the REIT and will contribute to the distributable income of KIP REIT in the years to come enabling our distribution yield to be further enhanced for the benefit of our unitholders,” he said.
For illustration purposes, the proforma effects of the proposed acquisition on the audited distributable income of KIP REIT for the financial year ended June 30, 2018 (FY18), assuming its completion on July 1, 2017, would be RM36.2 million, up from RM34.6 million in FY18. This would translate to a proforma distribution yield of 8.95% based on the closing price of 80 sen as at June 30, 2018 compared with the 8.55% distribution yield based on the audited FY18 results.
KIP REIT’s portfolio currently comprises five KIP Mart properties – a hybrid between traditional fresh markets and local community-based retail centres located at Tampoi, Kota Tinggi, Masai, Senawang and Melaka. Another KIP shopping mall is located in Bangi with a total net lettable area of over 936,000 sq ft.
KIP REIT units ended the morning session unchanged at 86 sen today, with 19,000 shares done, bringing a market capitalisation of RM434.56 million.