Axis REIT has proposed to acquire a property from FIW Steel Sdn Bhd for RM120m. We are neutral on the acquisition, with expected NPI yield of 4.2% vs. its current NPI yield of 6%. As we understand, the property only represents 36% of the total land area, and Axis REIT views it as an opportunity for potential redevelopment for an additional warehouse in the future as it is strategically located directly across to Axis REIT’s Bukit Raja Distribution Centre, with close proximity to Port Klang and good highway accessibility. Furthermore, we expect earnings to only inch up by less than 1% for FY21-22. We retain forecast pending acquisition completion. Maintain BUY with unchanged TP of RM2.49 based on targeted yield of 4.7% on FY21 DPU.

NEWSBREAK

Axis REIT has proposed to acquire a property from FIW Steel Sdn Bhd (FIW Steel) for RM120m. The property is located within Kawasan Perindustrian Bukit Raja Selatan, Shah Alam, Selangor. It comprises of a 20.75-acre freehold land with a single-storey detached warehouse building, 2 single-storey detached factory buildings, a single storey detached store together with a 3- storey office building and ancillary buildings. The total lettable area is 326k sq ft. The proposed acquisition will be funded by existing debt facility and is expected to be completed by 1HFY21. Furthermore, the property is currently 100% tenanted by FIW Steel. Upon completion, FIW will be the sole tenant with a tenancy for 1 year with an option to renew for another 4 terms of 3 months each. The monthly rental for the 1st year will be RM416k and RM608k for the renewed terms.

HLIB’s VIEW

Neutral. We are neutral on the acquisition as the net property income (NPI) yield is 4.2% vs. its current NPI yield of 6%. As we understand, the property only represents 36% of the total land area, and Axis REIT views it as an opportunity for potential redevelopment for an additional warehouse in the future. Moreover, it is strategically located directly across to Axis REIT’s Bukit Raja Distribution Centre, with close proximity to Port Klang and good highway accessibility. With the new asset, Axis REIT’s FY21-22 earnings will improve marginally by c. <1%. We feel the acquisition’s price works out to be fair for prime industrial space in Bukit Raja, at par with market value of RM121m based on the valuation made by independent valuer.

Gearing. Axis REIT intends to utilise debt facility from its existing credit facilities. Gearing ratio is expected to increase to 35.4% from 33.1% (FY20), this is still relatively below the gearing limit of 60% prescribed by the Securities Commission Malaysia.

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

Maintain BUY, TP: RM2.49. We maintain BUY with unchanged TP of RM2.49 based on FY21 DPU on targeted yield 4.7% which is derived from 1SD below 2-year historical average yield spread between Axis REIT and 10-year MGS yield in view of increased popularity in industrial properties, high occupant tenancy in its diversified portfolio and also one of the few Shariah compliant REITs.

Source: Hong Leong Investment Bank Research - 8 Mar 2021