Axis REIT has proposed to acquire a property from Xin Hwa Trading & Transport Sdn Bhd for RM75m. We are positive on the acquisition, as it is yield accretive, with an expected NPI yield of 6.5% vs. its current NPI yield of 6%. With the new asset, Axis REIT’s FY21-22 earnings will improve by approximately 1%-1.5%. Acquisition price works out to be fair for industrial space in Pasir Gudang, and it is also at par with market value of RM75m based on the valuation made by independent valuer. 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 Xin Hwa Trading & Transport Sdn Bhd for RM75m. The property is located within Kawasan Perindustrian Pasir Gudang, Johor. It consists of 2 parcels of industrial land (PLO823 and PLO 828) with each plot housing single storey detached warehouse, a 3-storey office annex and ancillary buildings. The total lettable area is 464k 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 Xin Hwa Trading & Transport Sdn Bhd. The lease term is for a fixed period of 10 years with the option to renew for a further 5 years. The monthly rental for the initial term (first 3 years of 10 years) is RM406k.

HLIB’s VIEW

Positive. We are positive on the acquisition as it is yield accretive, given that the net property income (NPI) yield is 6.5% vs. its current NPI yield of 6%. With the new asset, Axis REIT’s FY21-22 earnings will improve by approximately 1%-1.5%. The property sits on prime industrial land with close proximity to the Pasir Gudang Port, a sought after industrial locality for medium and heavy industries. Moreover, it is strategically located within the same row of Axis REIT’s Kerry Warehouse. Acquisition price worked out to be at RM161 psf, which is fair for prime industrial space in Pasir Gudang (c. RM130 psf – RM184 psf based on various websites) and it is also at par with market value of RM75m 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 34.5% 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 - 22 Mar 2021