Axis REIT gearing ratio manageable; to begin RM180m acquisitions

by MARK RAO / TMR file pix

AXIS Real Estate Investment Trust (REIT) is looking at a gearing ratio of 38% to 39% by end-2018, leaving the company enough space to chase RM180 million worth of acquisitions.

For its first quarter ended March 31 this year (1Q18), the REIT’s gearing ratio stood at 34.84% and is expected to increase upon completion of three ongoing acquisition exercises and its development in Subang, Selangor.

Managed by Axis REIT Managers Bhd, the company tabled an RM87 million bid to acquire industrial parcels of land and warehouses in Shah Alam, Selangor.

The company is also looking at completing the acquisitions of manufacturing facilities in Negri Sembilan and Johor respectively, worth a total RM57.2 million. The exercises are expected to be completed by the second half of this year.

The property investor is undertaking works for the Axis Aerotech Centre project in Subang — an industrial facility that will be handed over to Upeca Aerotech Sdn Bhd on Dec 15 this year.

“Post-acquisitions and the development that we are doing in Subang, our gearing will go up to about 38% to 39%, which is still way below the maximum approval limit of 50%,” Axis REIT Managers CEO and ED Leong Kit May told The Malaysian Reserve after the REIT’s AGM in Kuala Lumpur yesterday. “This gives us a lot of headroom to grow.”

Axis REIT has identified RM180 million worth of acquisition targets as part of the group’s strategy to grow its industrial base.

This includes Grade A logistics and manufacturing facilities with long leases from tenants, with strong covenants alongside office, business parks and industrial properties that have potential for future enhancement.

In 1Q18, the group managed a total of 41 properties and an asset base of RM2.62 billion, while retaining 8.09 million sq ft of space under management, with industrial properties making up 61% of its total net lettable area.

This comprised logistics (37%), engineering and building materials (21%) and aerospace (3%).

“The industrial segment is now a substantial part of our portfolio and this will remain the case in 2018,” Leong said, adding that the portfolio will continue to grow, with acquisitions henceforth to be industrialfocused.

Axis REIT’s proposed acquisition of industrial parcels of land and buildings in Shah Alam from Teraju Sinar Sdn Bhd is expected to contribute positively to the group as the property has a net yield of 7% and a weighted average lease expiry of six years.

Coupled with its planned acquisitions of facilities in Negri Sembilan and Johor, Leong said the REIT should achieve positive rental reversions this year, similar to what was managed in 2017.

Last year, the company registered an average rental reversion of 6.25%. In 1Q18, rental reversion was at 2.76%.

The REIT managed to increase its occupancy rate to 93.56% in the quarter from 91.12% in 4Q17.

It is predicted to increase further upon completion of its RM210.93 million warehouse for Nestlé Products Sdn Bhd, which is to be built on 515,000 sq ft of land in Klang and subsequently leased back to the Nestlé (M) Bhd unit.

Leong said the company’s occupancy rate should increase to about 94% to 95% upon completion of the development, while the group’s year-end occupancy target remains at between 94% and 97%.

In 1Q18, Axis REIT increased its net profit by 38.8% year-on-year to RM31.43 million, in line with the higher property income and revenue brought in.

The higher property income was owing to its newly acquired Kerry Warehouse and Facility in Kuantan, coupled with a positive rental reversion.

The REIT announced an income distribution of 1.94 sen to unit-holders, which grew from 4,607 to 4,184.