Axis REIT (AXREIT) announced that it is acquiring a 1.55m squae feet (sf) logistics warehouse facility in Pelabuhan Tanjung Pelepas (PTP), Johor, for RM390m from Equalbase PTP Sdn Bhd (EPSB). Upon deal completion, which is expected to be by mid-2022, AXREIT will lease the property back to EPSB for ten years. We understand that the monthly rental will be RM2.17m, with upward adjustments (of about 1% per year) at the start of year four (4) until year ten (10). This acquisition will be the largest to-date since the fund's establishment. AXREIT’s gearing ratio is expected to increase to 37.2% with the addition of the new asset. We maintain our earnings estimates for now pending the completion of the deal. All told, we maintain our Neutral call and DDM-derived TP of RM1.91.

• Asset details. This acquisition is consistent with the Group’s plan to focus on industrial-type properties which also includes the proposed warehouse development at Bukit Raja Distribution Centre 2 (BRDC 2) for RM130m. The latest asset acquisition, which is its largest to-date, is a modern ramp-up logistics facility and is well-equipped for logistics purposes, and is located within the vicinity of PTP Free Trade Zone, Malaysia's premier trans shipment port. We understand that the property is also a certified green building by Green Building Index (GBI). Based on the valuation report by First Pacific Valuers Property Consultants Sdn Bhd dated March 31, 2022, the property's market value is RM390m.

• Fair acquisition price. The asset has a long term lease of 10 years which is estimated to have gross rental yield about 7%, as compared to 9% in the Group portfolio (for logistics warehouse) currently. We understand that the property is occupied by the Vendor’s customers which includes two multi national automotive corporations, Al Futtaim RDC Malaysia Sdn Bhd and Kuehne + Nagel Sdn Bhd.with, and has carrying value of RM280m. Average price paid for the warehouse is estimated to be RM339psf based on the net lettable area of 1.15m sf, which is close to market value of AXREIT’s D37C warehouse in PTP Free Trade Zone which has a market value of RM297psf.

Source: PublicInvest Research - 12 Apr 2022