Axis REIT’s soft 3Q19 earnings temporary, upsides going forward

The valuation is in view of increased popularity in industrial properties, high occupant tenancy in its diversified portfolio

by SHAZNI ONG/ pic by TMR

AXIS Real Estate Investment Trust’s (Axis REIT) earnings will be impacted by acquisition expenses in the current financial year, but will improve thereafter on upsides in the industrial business, analysts said following the REIT manager’s latest financial results.

Hong Leong Investment Bank Bhd (HLIB) maintained its ‘Buy’ call on Axis REIT with a higher target price (TP) of RM2.03 (from RM2.01 previously), to include the manager’s newly acquired properties.

The valuation is in view of an “increased popularity in industrial properties, high occupant tenancy in its diversified portfolio and also being one of the few Shariah-compliant REITs,” the research firm wrote in a note yesterday.

It cut Axis REIT’s earnings forecast for the financial year ending Dec 31, 2019 (FY19), by 0.9% due to a drawdown to fund recent acquisitions, although FY20 and FY21 earnings were increased by 0.8%. The REIT is still actively pursuing quality acquisitions with a focus on Grade A logistics and manufacturing facilities.

“We expect a better 4Q19 with full quarter contribution from newlyacquired properties (property in Batu Kawan and facilities in Nusajaya) which were completed during the third quarter,” HLIB said.

MIDF Amanah Investment Bank Bhd kept its ‘Neutral’ call on the REIT, with a revised TP of RM1.82 (from RM1.84 previously). “Earnings for FY19 and FY20 adjusted by -1.6% and -1.5% to RM120 million and RM129 million respectively, in view of the lower than expected cumulative core net income. We now assume higher property expenses,” it said.

The research house estimates a 5.1% dividend yield for the REIT.

Axis REIT’s net profit fell 12.07% to RM26.15 million in the third quarter ended Sept 30, 2019 (3Q19), from RM29.74 million a year earlier, it said in a recent exchange filing. Revenue was 2.9% higher at RM53.86 million versus RM52.35 million previously.

Net property income climbed 1.8% to RM47.87 million in 3Q19 from RM47.03 million last year, with the addition of three properties to the REIT manager’s portfolio.

Total trust income grew 2.9% to RM53.86 million from RM52.35 million the year before, while property income rose to RM53.64 million from RM52.13 million previously.

Axis REIT announced a third interim income distribution per unit of 2.35 sen for 3Q19 payable on Nov 29, representing 99.8% of its realised income available for distribution generated from its operations during the quarter.

Realised net income from operations was RM28 million after deducting total expenditure of RM25.86 million, of which RM7.81 million was attributable to property expenses and RM18.05 million to non-property expenses.

Axis REIT completed the acquisitions of Nusajaya Tech Park Facility 1 and Nusajaya Tech Park Facility 2, both located in Johor, on Sept 30.

It also announced last week that its intention to buy a warehouse cum office building in Johor for RM65 million. The 100%-occupied property is expected to be fully acquired by the first half of FY20.

As at end-September, Axis REIT’s portfolio comprised 47 properties, with RM3 billion worth of assets under management and a 92% portfolio occupancy with a weighted average lease expiry of six years.