• Maintain BUY, new MYR2.09 DDM-derived TP from MYR2.08, 12% upside, c.5% yield. After a slow 2023, Axis REIT has made its fourth announcement for the year regarding new acquisitions – for the acquisition of two industrial properties for a lump-sum cash consideration of MYR125m. The properties provide a gross yield of 6.2%, and the transaction is expected to be completed by 4Q24. We continue to like AXRB as a proxy to the resilient industrial property segment.

• New acquisitions. Axis REIT announced the proposed acquisition of two industrial properties in Klang Valley from Cycle & Carriage Bintang (CCBB). The properties will be leased back to CCBB for a fixed period of 10 years. Property 1 is a four-and-a-half storey detached building used as a 3S Service Centre in Section 51A, Petaling Jaya, while property 2 (2S Service Centre) is a corner detached industrial lot located within Batu Caves Industrial Area. Both properties make up a combined 227k sq ft NLA, and are fully occupied by CCBB.

• The lessee and its contributions. CCBB is in the business of retailing motor vehicles, sales of spare parts, and servicing vehicles. The starting gross yield is c.6.2% with agreed step-up throughout the 10-year rental agreement. The acquisition is slated for completion by 4Q24.

• Acquisition to be fully funded via borrowings. Axis REIT intends to use its existing financing facility to proceed with the acquisition. Including the previously announced MYR401m worth of acquisitions in Bukit Raja and MYR162m disposal for Axis Steel Centre, we expect the REIT’s gearing ratio to increase to 38% by FY25 (FY23: 34.4%).

• Mildly positive on the acquisition. The gross yield of c.6.2% makes it an accretive acquisition, but considering the relatively small size, we expect it to slightly increase FY25-26F earnings by 0.4% on a full-year basis. That said, the asset yield should increase over the year with the rental rate step-ups.

• Maintain BUY. After raising our earnings forecast, our TP is raised slightly to MYR2.09 from MYR2.08. This includes a 2% ESG premium based on our in- house methodology. Key risks include delays/cancellations of acquisitions, non-renewal of its expiring leases, and intensifying competition.

Source: RHB Research - 24 May 2024