Axis REIT’s (AXREIT) 1QFY23 realised net profit came in weaker than expected at RM32.4m (-15.3% YoY, -12.0% QoQ), only at c.19% of our and consensus full year estimates. The earning disparity was mainly due to higher provision of c.RM3.5m for doubtful debt, lower than expected occupancy rates and higher one off building expense incurred during the quarter. All told, we adjust our FY23 estimates downwards by 8% to account for these higher expenses. Group portfolio size remained the same at 62 properties valued at RM4.32bn. Space under management is about 12.7m while financing ratio is currently at 33%. Portfolio occupancy is at 92.7% with weighted average lease expiry of 5.26 years. Distribution per unit (DPU) of 2.05sen was announced in 1QFY23. Maintain Neutral call with DDM-derived TP unchanged at RM1.96.

• Net Property Income dropped 2.5% YoY to RM69.7m in 1QFY23, mainly due to lower occupancy. We understand that one of the tenancies for Axis Shah Alam Distribution Centre 3 expired in December 2022 and the Group is currently in the process of securing a new tenant. Meanwhile, property expenses rose 15.8% YoY to RM11.5m mainly due to higher maintenance cost. Non-property expenses also rose 6.1% YoY due to a provision for doubtful debts of approximately RM3.5m made for Yongnam Engineering Sdn Bhd, the lessee of Axis Steel Centre @ SiLC in Johor in 1QFY23. Separately, AXREIT spent RM47.7m on major capital expenditure, i.e. RM3.6m for enhancement of properties of and RM44.1m incurred for the ongoing proposed developments by AXREIT.

• Acquisition targets worth RM140m 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 - 19 Apr 2023