Recent property acquisition to boost Axis REIT earnings


AXIS Real Estate Investment Trust‘s (Axis REIT) recent RM65 million pro- perty acquisition in Johor is expected to contribute an additional 0.8% to the group’s core net income (CNI) in financial year 2020 (FY20).

MIDF Research believes the purchase price of RM65 million paid by Axis REIT is in line with the market value as appraised by an independent valuer.

“Axis REIT’s gearing is expected to climb to 38.7% with this acquisition from 38.4% previously,” MIDF said in a research note on Monday.

Early this week, the REIT acquired a single-storey warehouse cum office building, together with ancillary buildings in Pelabuhan Tanjung Pelepas (PTP), Johor, in a cash deal worth RM65 million.

The acquisition is in tandem with its investment objectives and growth strategy of providing its unitholders with stable income distribution. This is to achieve growth in the net asset value per unit of Axis REIT by acquiring high quality and earnings accretive properties with strong recurring rental income, the group said in a filing exchange to Bursa on Monday.

The property has a 100% occupancy rate as at Oct 14, and the proposal is expected to be completed by the first half of FY20.

Subsequently, the property will then be leased to Schenker Logistics (M) Sdn Bhd for 10 years as per the lease agreement dated from May 1, 2018, until April 30, 2028, with an option to renew for another five years.

“Rental income per year for the property is RM4.81 million for the first five years and will be increased to RM5.34 million from the sixth year to 10th, representing a step up of 11% in five years,” it said.

MIDF has placed a target price of RM1.84 on Axis REIT with the assumption of new income stream from the latest acquisition.

“Our required rate of return is maintained at 7.5%. Dividend yield for Axis REIT is estimated at 5.1%.

“While we like Axis for its stable recurring income, we believe the unit price upside is limited at this juncture,” it said.

Hong Leong Investment Bank Bhd (HLIB) remains positive on Axis REIT’s new acquisition as it is yield accretive, given the net yield of 7.4% (before Islamic financing cost) compared to its current yield of 5.2%.

“With the new assets, FY20-21 earnings will improve by 0.3% and 1% respectively,” it said in a research note.

The investment bank believes the acquisition price works fair for industrial space in PTP free trade zone and it is at par with current market value (RM65million), based on valuations by the independent valuer.

HLIB has a target price of RM2.01 on Axis REIT in view of increased popularity in industrial properties.

Axis REIT’s share price closed unchanged yesterday at RM1.79, giving it a market capitalisation of RM2.21 billion.