Feeling Assured

We attended Axis REIT’s 4Q19 results briefing and walked away feeling more assured on its business outlook. Axis REIT registered a strong take-up rate of 96% on 2.1m sf of space which expired in 2019 (22% of NLA), with positive rental reversion of 2%. Management continues to see good acquisition opportunities and identified RM135m worth of acquisition targets in 2020. Elsewhere, we are pleased to hear of the strong interest in Axis Industrial Facility @ Rawang; however, we sense that securing a tenant for the Axis Mega Distribution Centre 2 may take some time. All in, we continue to like Axis REIT for its industrial / warehouse asset portfolio, strong management team and attractive 5.4% yield for 2020E. We reiterate our BUY rating on Axis REIT with an unchanged DDM-derived price target of RM1.97.

96% of Space Expired in 2019 Was Taken Up With 2% Rental Reversion

Out of Axis REIT’s 2.13m sf of space which expired in 2019 (22.4% of total NLA), 96% was taken up, of which 84% was renewals. These renewals / new tenancies delivered a positive rental reversion of 2%. The high retention rate and positive reversion imply robust demand for Axis REIT’s properties, and its strong execution capabilities. Moving into 2020, a number of leases accounting for 17.7% of total NLA are set to expire. We expect Axis REIT to maintain a high retention rate with positive rental reversions of 2%.

Slight improvement in office occupancy; expect new tenant for Axis Industrial Facility @ Rawang by mid-2020

In 2019, management has improved the occupancy at its offices / office industrial properties (Fig 1). Looking ahead, management expects The Annex to enjoy full occupancy in 1H2020 and is hopeful to secure a new tenant for the Axis Industrial Facility @ Rawang by mid-2020. To recap, the Rawang facility was previously leased to Scomi Coach for RM3.4m / year. The lease ended prematurely in July 2019 and Axis REIT has sought legal advice on the issue. Elsewhere, management continues to engage with potential tenants to undertake a built-to-suit project for its Axis Mega Distribution Centre Phase 2. However, we sense that securing such a tenant may take some time due to the large project site and high capex.

Eyeing Another RM135m Worth of Acquisition Targets

Axis REIT lined-up RM360m worth of acquisition targets (Fig 3) in 2019. Management has since signed the SPAs for 7 facilities (combined value of RM244m, gross yield of 7.7%) and accepted the letter of offers for another 3 properties worth RM116m. Moving into 2020, Axis REIT has identified new acquisition targets with a combined value of RM135m.

Source: Affin Hwang Research - 22 Jan 2020