Axis REIT’s (AXREIT) 1QFY21 realised net profit came in at RM32.2m (+6.5% YoY, -0.5% QoQ) which was within our expectations but below consensus. Group realized net profit constituted 24.3% and 21.6% of our and consensus full year estimates. For 1QFY21, AXREIT’s property income was RM57.7m, rising 0.2% YoY, mainly due to contributions from newly-acquired properties, which partly offset by rental loss from the expiry of tenancy of D8 Logistics Warehouse since end-October 2020. The Group also completed the acquisition of Indahpura Facility 2, Johor for RM8.5m, Indahpura Facility 3, Johor for RM6.7m, Beyonics i Park Campus Block F, Johor for RM13.0m and Bukit Raja Distribution Centre 2, Shah Alam for RM120.0m. Separately, It has signed the sale and purchase agreement to acquire a warehouse located in Pasir Gudang, Johor Bahru for RM75.0m. All in, it has 57 assets comprising 10.9msf and 152 tenants with average occupancy of 91%. No change to our earnings estimates for now. Maintain our Neutral call and DDM-derived TP to RM1.91. Key catalyst for the Group is Phase 2 of the Axis Mega Distribution Center.

• Realised net income rose 6.5% YoY mainly due to rental from newly acquired properties. This has offset the rental loss from the expiry of tenancy of D8 Logistics Warehouse since end-October 2020. During the Movement Control Order 2.0, we understand that AXREIT has also registered lower seasonal and visitor car park income. The Group also spent a total of RM10.3m on enhancement works in the portfolio. Out of this amount, RM5.9m was paid as part payment for the extension of lease of D21 Logistics Warehouse for another 30 years. Financing ratio increased from 33% a quarter ago to 36% with completion of the new asset deals.

• Targeting RM135m worth of properties. New assets in the pipeline is estimated to be worth c.RM135m with focus on Grade A logistics facilities/manufacturing facilities with long leases from tenants with strong covenants, well-located retail warehousing in locations ideal for last-mile distribution and office, business parks and industrial properties with potential for future enhancement.

Source: PublicInvest Research - 22 Apr 2021