3QFY21 RNI of RM63.1m came in within our and market expectations at 72% each, while dividend of 7.08 sen is also within at 73%. One of the few REITs boasting positive rental reversions while occupancy remains healthy at 94%. Limited risk on low lease expiries (18% p.a.) of which it has secured 87% of the expiring leases. We have applied the lowest spread under our coverage at +1.0ppt due to AXREIT’s earnings resiliency throughout the pandemic. Maintain OUTPERFORM and TP of RM2.15 on FY22E GDPU of 9.9 sen.

9MFY21 realised net income (RNI) of RM100.4m came in within our and market expectations, at 72% each. The Group also declared 3QFY21 dividend of 2.45 sen (of which 1.94 sen is taxable and 0.51 sen is non- taxable), bringing 9MFY21 dividend to 7.08 sen which also met our FY21 estimate of 9.7 sen at 73%, implying 5.0% gross yield.

Results’ highlights. YoY-Ytd, topline was up by 5.8% on rentals from four newly acquired properties YTD, while operating cost decreased slightly (-2.1%). All in, CNP was up by 7.7% despite higher financing cost (+14%) and expenditure (+7.3%). Net gearing moved up to 0.36x (vs. 0.32x in 2QFY21). QoQ, top-line was up slightly by 1.7% on stable portfolio occupancy of 94% and low single digit reversions. However, RNI was up by 21% on a reversal on a provision for doubtful debts from a tenant.

Outlook. FY21 is expected to see minimal leases expiring at 18% of portfolio NLA, of which the Group has already secured renewals for 87% of these leases on positive reversions, while FY22 will see 21% of leases up for expiry. Going forward, Group is eyeing RM187m worth of industrial assets acquisitions, focusing on Grade A logistics located in Selangor, Penang and Johor and will continue to target acquisitions with net yield of >6%.

Additionally, the Group announced a proposed private placement of up to 13% of units issued, which could potentially lower gearing to 0.27x (from 0.36x currently) to make headroom for future acquisitions. Assuming the private placement is fully taken up at an indicative price of RM1.88 (3% discount to 5-day VWAMP), this placement could potentially raise RM349m which would be first used to pare down borrowings to 0.27x (from 0.36x) before heading out on an acquisition spree. For now, we make no changes from the placement pending finalised details of the issue price and total take up rate which is expected to be completed by 2Q22.

Maintain FY21-22E RNI of RM140.5-142.8m for now which will be driven by single-digit positive reversions, gradual improvement in occupancy to 94-95% in FY21-22 and positive contributions from acquisitions completed in FY21. Our FY21-22E GDPU of 9.7-9.9 sen imply gross yield of 5.0-5.1%.

Maintain OUTPERFORM and Target Price of RM2.15 on FY22E GDPU/NDPU of 9.9/8.9 sen on an unchanged +1.0ppt spread, at historical average SD, to the 10-year MGS target of 3.60%. Our applied yield spread is at the lower-end among MREITs under our coverage (+1.1 to +4.5ppt) due to its portfolio resiliency. AXREIT is our preferred pick for its: (i) earnings stability during this pandemic given its exposure to the resilient industrial segment, (ii) minimal lease expiries (<18% of portfolio p.a.) which is mostly secured, (iii) long-term leases during these uncertain times (WALE of 5.7 years vs. prime retail REITs’ WALE of c.2- 3 years), and (iv) low gearing of 0.36x (vs. MREITS’ gearing limit of 0.60x) well-positioned to take advantage of acquisition opportunities which may emerge under the challenging market conditions.

Source: Kenanga Research - 22 Oct 2021