Axis REIT has proposed to acquire an industrial facility from Jemaramas Jaya Sdn Bhd for RM41.0m. We note that the acquisition is small relative to the group's portfolio size (c.1% of its existing portfolio of approximately RM4.1bn). We believe this new asset will not materially contribute to its earnings. Acquisition price works out to be attractive, based on valuation made by independent valuer. Maintain BUY with an unchanged TP of RM2.08 based on targeted yield of 4.6% on FY23 DPU.

NEWSBREAK

Axis REIT has proposed to acquire an industrial facility from Jemaramas Jaya Sdn Bhd (JJSB) for RM41.0m. The property is located along Jalan Haji Salleh in Klang, Selangor , which is situated approximately 15km to the north-west of Shah Alam town centre and 50km south-west of Kuala Lumpur city centre. It comprises 2 warehouses and a 3- storey annexed office building. The total GFA is 193k sqft.

The proposed acquisition will be funded by existing bank financing and is expected to be completed in 4Q22. The property is currently being used by JJSB, of which upon completion of the acquisition, the property will be leased back to JJSB for a fixed term of 3 years. The lease details such as rental income, however, are not disclosed.

HLIB’s VIEW

Neutral. At this juncture, there are no details on the rental rate. Nonetheless, we note that the acquisition is small relative to the group's portfolio size (c.1% of its existing portfolio of approximately RM4.1bn). As such, we believe this new asset will not materially contribute to its earnings. Separately, acquisition price is estimated to be RM212 psf. We deem the acquisition price to be attractive as this is lower than the price range of c.RM290 - RM350 psf asking price for industrial properties in the area, based on various websites as well as 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 37% from 36% (1HFY22), which is still well below the gearing limit of 60% (temporary increment 50% till 31 Dec 2022) prescribed by the Securities Commission Malaysia. This provides Axis REIT ample headroom to undertake further acquisitions that are earnings accretive.

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

Maintain BUY, TP: RM2.08. We maintain our BUY call with an unchanged TP of RM2.08. To note, our TP is based on FY23 DPU on targeted yield of 4.6% derived from -1SD below 5-year historical average yield spread between Axis REIT and 10Y-MGS, in view of its robust track record, increased popularity in industrial properties (93% of properties on industrial titles), high occupant tenancy in its diversified portfolio, and is also one of the few Shariah compliant REITs.

Source: Hong Leong Investment Bank Research - 26 Sept 2022