Axis REIT has proposed to acquire a property from Equalbase PTP Sdn Bhd for RM390m. We are positive on the acquisition, as it is yield accretive, with an expected NPI yield of 6.7%. With the new asset, Axis REIT’s FY22-24 earnings will improve by approximately 2.0%-2.8%. Acquisition price works out to be reasonable, based on valuation made by the independent valuer. We retain forecast pending acquisition completion. Maintain BUY with unchanged TP of RM2.10 based on targeted yield of 4.6% on FY23 DPU.

NEWSBREAK

Axis REIT has proposed to acquire a logistics warehouse facility from Equalbase PTP Sdn Bhd (EPSB) for RM390m. The property is located within the Pelabuhan Tanjung Pelepas Free Trade Zone, Johor. It consists of a double storey ramp-up warehouse cum 3-storey office, covered car park at roof top level together with ancillary buildings. The total lettable area is 1.2m sq ft.

The proposed acquisition will be funded by existing debt facility and is expected to be completed in mid FY22. The property is currently being used by EPSB’s customers; Al Futtaim RDC Malaysia Sdn Bhd and Kuehne + Nagel Sdn Bhd, of which upon completion, the property will be leased back to EPSB for a fixed term of 10 years with a monthly rental of RM2.2m.

HLIB’s VIEW

Positive. We are positive on the acquisition as it is accretive at net property income (NPI) yield of 6.7%, comparable to its current NPI portfolio yield. With the new asset, Axis REIT’s FY22-24 earnings will improve by approximately 2.0%-2.8%. The location is strategic, of c. 18km due to south-west of Johor Bahru City Centre, c.41.3km from Senai International Airport and c.39.9km from Port of Singapore Authority (PSA). Acquisition price worked out to be at RM339 psf, which is reasonable for a space within Pelabuhan Tanjung Pelepas (c.RM290 to RM360 psf based on various websites along with 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% from 31% (FY21), this is still 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: RM2.10. We maintain BUY with unchanged TP of RM2.10 based on FY23 DPU on targeted yield 4.6% 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 - 12 Apr 2022