Axis REIT has proposed to acquire a property from Venice Tulip Sdn Bhd for RM32m. We are positive on the acquisition, as it is yield accretive, with an expected NPI yield of 9.6% vs. its current NPI yield of 7.6%. With the new asset, Axis REIT’s FY22-23 earnings will improve by approximately 1%. Acquisition price works out to be very reasonable for industrial space in Pasir Gudang, and it is also lower than market value of RM35m based on the valuation made by the independent valuer. We retain forecast pending acquisition completion. Maintain BUY with unchanged TP of RM2.54 based on targeted yield of 4.2% on FY22 DPU.

NEWSBREAK

Axis REIT has proposed to acquire a property from Venice Tulip Sdn Bhd for RM32m. The property is identified as PLO 78, located within Kawasan Perindustrian Pasir Gudang, Johor. It consists of 1 block of single storey warehouse with a mezzanine floor (Block 1) and 3 blocks of single storey warehouse (Block 2, 3 and 4). The total lettable area is 276 sq ft.

The proposed acquisition will be funded by existing debt facility and is expected to be completed by 1HFY22. Furthermore, the property is currently 100% tenanted by Venice Tulip Sdn Bhd. The lease term is for a fixed period of 3 years with a monthly rental of RM261k.

HLIB’s VIEW

Positive. We are positive on the acquisition as it is yield accretive, given that the net property income (NPI) yield is 9.6% vs. its current NPI yield of 7.6%. With the new asset, Axis REIT’s FY22-23 earnings will improve by approximately 1%. The property is within close proximity to the Johor Port, the world largest palm oil terminal with a storage capacity of 460k metric tonnes. Acquisition price worked out to be at RM116 psf, which is very reasonable for industrial space in Pasir Gudang (c. RM100 to RM160 psf based on various websites) and it is also lower than market value of RM35m based on the valuation made by the independent valuer.

Gearing. Axis REIT intends to utilise debt facility from its existing credit facilities. Gearing ratio is expected to increase to 37.2% from 36.6% (9MFY21), this is still relatively below the gearing limit of 60% (temporary increment from 50% till 31 Dec 2022) prescribed by the Securities Commission Malaysia.

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

Maintain BUY, TP: RM2.54. We maintain BUY with unchanged TP of RM2.54 based on FY22 DPU on targeted yield 4.2% 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 - 26 Oct 2021