Axis REIT has proposed to acquire an industrial property for a total sum of RM18.5m. Upon completion in 2H18, the property shall be leased to Nippon Wiper Blade Sdn Bhd for a fixed period of 10 years. We are positive on the news as we opine that the acquisition price is fair and yield accretive. We maintain forecast pending completion of the acquisition. We maintain HOLD with unchanged TP of RM1.55 based on unchanged targeted yield of 5.7%.

NEWSBREAK

Axis has proposed to acquire a piece of freehold land of approximately 183k sq ft from Gandour (Malaysia) Sdn Bhd. The land is situated within industrial development area known as Senawang Industrial Park in Senawang, Negeri Sembilan. The property includes a 3-storey office, 1.5-storey warehouse factory and other ancillary buildings.

The proposed acquisition will cost RM18.5m, to be funded by existing bank facility. The proposed acquisition of the property has a 100% occupancy rate as at 8th August 2018 and is expected to be completed in 2H18.

Upon completion, the property with a net lettable area of 148k sqft shall be leased to Nippon Wiper Blade Sdn Bhd for a fixed period of 10 years expiring on 30 June 2026 (commenced 1 July 2016) at an agreed monthly rental of RM130.0k per month for the first 5 years followed by a rental rate of RM149.5k per month in the following 5 years.

HLIB’s VIEW

Positive on the acquisition. We are positive on the proposed acquisition as it is yield accretive, given the net yield of 7.7% (before Islamic financing cost) vs its current yield of 5.4%. The property will be fully tenanted under fixed long lease term of 10 years, which further minimises the risk to Axis. The acquisition price works out to be RM100.9 psf, which is fair for freehold industrial space in Senawang, Negeri Sembilan. Also, the acquisition price of RM18.5m is lower than the market value of RM21.0m based on valuations by the independent valuer.

Gearing. Axis intends to utilise debt facility of approximately RM18.5m from its existing credit lines. Axis’s gearing ratio is expected to increase slightly to 33.5% from 33.0% (FY17) which is still comfortably below the gearing limit of 50%.

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

Maintain HOLD, TP: RM1.55. We maintain our HOLD rating at TP RM1.55 based on targeted yield of 5.7% which is derived from 2 years historical average yield spread of Axis REIT and 10-year MGS.

Source: Hong Leong Investment Bank Research - 9 Aug 2018