We met with management yesterday and came out feeling reassured of its direction going forward. Upgrade to BUY (from Neutral) with a revised DDM-based TP of MYR1.84 (from M YR3.67, 14% upside) post its unit split yesterday. We view management’s proactive approach in addressing the vacancies in its assets positively, although we note that the outlook for the office and industrial markets remains soft.

Still safe and sound. Management shared during our meeting yesterday that Axis REIT’s tenancies were not significantly affected by the recent macro headwinds arising from the weakening MYR and the softening of the property sector. This is because the bulk of its portfolio tenancies consists of export-driven logistics companies that have seenminimal impact from the macro challenges. Additionally, as the REIT only owns four pure office assets, it is largely insulated from theoversupply in office space, given the offices’ prime location is in Petaling Jaya with high occupancies (>90%).

Prioritising vacant spaces. We believe that the REIT should focus on filling up its vacant spaces in Axis Business Park and Axis Eureka (which currently have occupancy rates of below 60%), as this could potentially boost DPU contribution by about 3.9 sen. Management has reiterated its commitment in filling up the vacant spaces and is actively seeking for tenants. Given its track record, we believe that it would be able to securelong -term tenants for these assets.

Unit split completed. The REIT has completed its 2-for-1 unit split as of yesterday. The unit base now stands at 1.1bn vs 547.8m pre-split. We reiterate our view that this unit split will improve liquidity and enhance its attractiveness to retail investors, given the larger unit base now. We note that although its unitholders have also approved the mandate for the placement of new units, future placements would most likely be done in tandem with the new asset acquisitions.

Upgrade to BUY. We made no changes to our earnings forecasts.However, we upgrade our call to BUY (from Neutral) given the 14% upside from its current price. Our new DDM-based TP post-split is now MYR1.84 (from MYR3.67). While the REIT provides a defensive exposure in the current volatile equity market, the potential re-rating catalyst should come from yield accretive asset injections.