KEY INVESTMENT HIGHLIGHTS

• Acquires Gelang Patah warehouse for RM65m

• Step up rate of ~11% after first five years

• Slight positive on the acquisition as it is earnings accretive

• Maintain NEUTRAL with an adjusted TP of RM1.84 (previously RM1.83)

Acquires Gelang Patah warehouse for RM65m. Axis REIT has entered into a sales and purchase agreement with Rancak Beta Sdn Bhd to buy a warehouse cum office building at Pelabuhan Tanjung Pelepas, Gelang Patah, Johor for RM65m. The land area of the asset is 8.18 acres while the gross floor area is 230,272.7 sq ft. It comes with a 35.5-year lease tenure. The single-storey warehouse and three-storey office building is about one year old and is fully occupied.

Step up rate of ~11% after first five years. The property will then be leased to Schenker Logistics (M) Sdn Bhd for 10 years as per the lease agreement dated from 1st May 2018 to 30th April 2028, with an option to renew for another 5 years. Rental income per year for the property is RM4.81m for the first five years and will be increased to RM5.34m from year 6th to 10th, representing a step up of ~11% in five years.

Slight positive on the acquisition as it is earnings accretive.

Based on our estimates, the property will add 0.8%/0.7% to its CNI for FY20F/FY21F. On top of that, the purchase price of RM65.0m is in line with the market value of RM65.0m as appraised by independent valuer, First Pacific Valuers Property Consultants Sdn Bhd, using the income approach and comparison approach. Meanwhile, Axis REIT’s gearing is expected to climb to 38.7% with this acquisition from 38.4% previously. We anticipate a fund raising exercise in the near term as Axis’ gearing level creeps nearer to 40% in view of its targeted acquisition pipeline.

Maintain NEUTRAL with revised TP of RM1.84 (from RM1.83 previously). Our TP is raised to RM1.84 from RM1.83 in line with the assumption of new income stream from the latest acquisition. Our required rate of return is maintained at 7.5%. Dividend yield for Axis is estimated at 5.1%. While we like Axis for its stable recurring income, we believe that the unit price upside is limited at this juncture.

Source: MIDF Research - 15 Oct 2019