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Author: HLInvest   |   Latest post: Wed, 21 Aug 2019, 9:20 AM

 

Axis REIT - Acquisition in Bayan Lepas

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Axis REIT has proposed to acquire an industrial property for a total sum of RM20.5m from Zoomic Technology (M) Sdn Bhd. Upon completion by FY19, the property shall be leased to Pentax Medical (Penang) Sdn Bhd for a fixed period of 3 years with an option to renew for another 3 years. We are positive on the news as we opine that the acquisition amount is fair and yield accretive. We maintain forecast pending completion of the acquisition. We maintain BUY with unchanged TP of RM1.93, based on targeted yield of 4.9%. We continue to like Axis REIT due to its high occupancy diversified portfolio and being one of the few Shariah compliant REITs.

NEWSBREAK

Axis REIT has proposed to acquire a piece industrial land of approximately 90k sqft from Zoomic Technology (M) Sdn Bhd. The land is located within the Bayan Lepas Free Industrial Zone Phase IV, in Bayan Lepas Pulau Pinang. The property includes a purpose-built double-storey factory-cum-office building.

The proposed acquisition will cost RM20.5m, to be funded by existing debt facility. The property has a 100% occupancy rate as at 17 July 2019 and the proposal is expected to be completed by 4Q19.

Upon completion, the property with a net lettable area of 78k sqft shall be leased to Pentax Medical (Penang) Sdn Bhd for a fixed period of 3 years expiring on 31 January 2021 (commenced 1 February 2018) with an option to renew for another 3 years. The rental rate is at an agreed monthly rental of RM137k per month for the first 2 years.

HLIB’s VIEW

Positive. We are positive on the acquisition as it is yield accretive, given the net yield of 7.0% (before Islamic financing cost) vs its current yield of 5.2%. With the new asset, our FY20-21 earnings will improve by 0.2%. The property already has a fixed tenant for 3 years (commenced 1 February 2018), with an option to renew another 3 years; this minimises the risk to Axis REIT of looking for a tenant. We feel the acquisition price works out to be fair for industrial space in Bayan Lepas, and it is at par with the current market value based on valuations by the independent valuer. Notably, the acquisition price of RM20.5m is lower than the book value of the property, at RM22.6m.

Gearing. Axis REIT intends to utilise debt facility of approximately RM20.5m from its existing credit facilities. Axis REIT’s gearing ratio is expected to increase to 37.7% from 37.3% (FY18).

Forecast. We maintain our forecast as we expect contribution will only kick in in FY20, pending completion of the acquisition.

Maintain BUY, TP: RM1.93. We maintain BUY with unchanged target price RM1.93 based on 1SD below 2-year historical average yield spread between Axis REIT and 10-year MGS yield in view of increased popularity in industrial properties, high occupant tenancy in its diversified portfolio and also one of the few Shariah compliant REITs.

 

Source: Hong Leong Investment Bank Research - 18 Jul 2019

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Labels: AXREIT

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