HLBank Research Highlights

Author: HLInvest   |   Latest post: Fri, 8 Nov 2019, 4:28 PM


Axis REIT - Another Acquisition on the Cards

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Axis REIT has proposed to acquire an industrial property for a total sum of RM65m from Rancak Beta Sdn. Bhd. Upon completion by first half of FY20, the properties shall be leased to Schenker Logistics (Malaysia) Sdn. Bhd. We are positive on the news as the acquisition amount is fair and is yield accretive. We retain forecast pending acquisition completion. Maintain BUY with unchanged TP of RM2.01, based on targeted yield of 4.7%. We like Axis REIT due to its high occupancy diversified portfolio and being one of the few Shariah compliant REITs.


Axis REIT has proposed to acquire a piece of industrial land of approximately 356k sqft from Rancak Beta Sdn. Bhd. The land is located within Pelabuhan Tanjung Pelepas (PTP) Free Trade Zone. The property includes a single-storey warehouse cum-office building together with ancillary buildings. The proposed acquisition will cost RM65m, to be funded by existing debt facility. The property has a 100% occupancy rate as at 14th October 2019 and the proposal is expected to be completed by first half of FY20. Upon completion, the property with a net lettable area of 223k sqft shall be leased to Schenker Logistics (Malaysia) Sdn. Bhd. for a fixed period of 10 years from the commencement date of 1st May 2018 to 30th April 2028 with an option to renew for another 5 years. The rental rate is at RM401k per month for the first 5 years with an 11% rental step-up in the next subsequent 5 years.


Positive. We are positive on the acquisition as it is yield accretive, given the net yield of 7.4% (before Islamic financing cost) vs its current yield of 5.2%. With the new assets, our FY20-21 earnings will improve by 0.3% and 1% respectively. The property will have a fixed tenant under a fixed long term lease of 10 years, which further minimises the risk to Axis REIT. We feel the acquisition price works out to be fair for industrial space in Pelabuhan Tanjung Pelepas (PTP) Free Trade Zone and it is at par to current market value (RM65m), based on valuations by the independent valuer. Furthermore, the lessee, Schenker Logistics (Malaysia) Sdn. Bhd., is one of Axis REIT’s existing top 10 tenants in the portfolio. The lessee is a one-stop-logistics provider offering total integrated logistics services to local, regional and global customers.

Gearing. Axis REIT intends to utilise debt facility of RM65m from its existing credit facilities. Gearing ratio is expected to increase to 38.7% from 37.3% (FY18), which is below the gearing limit of 50% prescribed by the Securities Commission Malaysia.

Forecast. We maintain our forecast pending completion of the acquisition.

Maintain BUY, TP: RM2.01. We maintain BUY with unchanged target price RM2.01. To note, our valuation is 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 - 21 Oct 2019

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