Axis REIT’s (AXREIT) 1QFY22 realised net profit came in within our and consensus expectations. The quarterly performance was lifted mainly by positive rental reversion in FY21 from tenancy renewals/contracted step-ups and contributions from newly acquired properties. The Group’s 1QFY22 realised net profit of RM38.8m (+20.5% YoY, +5.0% QoQ) constituted 27% and 26% of our and consensus full year estimates. A first interim income distribution for FY22 of 2.42 sen per unit was also proposed, which is 8.5% higher than 1QFY21’s 2.23 sen. We adjust our FY22/23/24 forecasts upwards by 10%/19%/18% after factoring in contributions from new assets especially the expected completion of a logistics warehouse in Pelabuhan Tanjung Pelepas for RM390.0m (by mid- 2022), and higher rental reversions. All told, we still maintain our Neutral call but lift our DDM-derived TP to RM1.96 (from RM1.91 previously) with new yield accretive asset additions.

• Three new assets in the last six months. AXREIT added three properties to its portfolio in recent months, namely Xin Hwa Warehouse @ Pasir Gudang, Pasir Gudang Logistics Warehouse 2 and Indahpura Facility 4, which were completed on 21 October 2021, 7 March 2022 and 8 March 2022, respectively. These acquisitions bolstered AXREIT’s total portfolio to 60 properties from end 1QFY21’s 57 properties. Recently, it also announced the planned acquisition of a 1.55msf 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 10 years. The new asset is expected to generate gross rent of RM26m for the first 3 years, with contracted step-up rent of 1% thereafter to year 10.

• Acquisition targets worth RM120m in the pipeline. The Group is still looking to expand its asset portfolio with focus on Grade-A logistics facilities and manufacturing facilities with long leases from tenants with strong covenants. The assets targeted will be well-located logistics warehousing in locations ideal for last-mile distribution. In addition, the Group is also looking at office, business parks and industrial properties with potential for future enhancement.

Source: PublicInvest Research - 21 Apr 2022