Axis Real Estate Investment Trust is the first REIT listed in Bursa Malaysia on 3 August 2005. It is an industrial-focused REIT. This means most of its investment properties are for storage, distribution, manufacturing, and data centre. As of 30 June 2021, it has 5 types of investment properties as follows:

If you invested in this REIT since its IPO, you would have gained 367.9% in ROI. What makes this REIT perform so well? Here’s 6 key insights about AXREIT that you should know before investing:

#1: RELATIVELY STABLE PERFORMANCE

When it comes to industrial REIT, the rental income is pretty stable. Companies do not frequently move their warehouses or manufacturing facilities. Every tenancy contract signed is pretty long-term – approx. 3 to 5 years.

For AXREIT, its weighted average lease expiry (“WALE”) as of 1H 2021 stood at 5.2 years. This means the risk of its investment properties going vacant is low. But there is a disadvantage of having a long WALE and that is loss of rental reversion opportunity. Similar to other tenancy agreements, you can only revise upward the rental rate after the end of the tenure.

Nevertheless, a long WALE provides certainty to this REIT’s rental income. That’s why they are so stable in nature.

#2: THE MOST ACTIVE REIT MANAGER

This is by far one of the most active REIT manager I have seen in Malaysia. Every year you can expect the REIT manager announcing acquisition activities or asset enhancement initiatives. AXREIT is also the first to carried out a built-to-suit development project in 2016 for Nestle.

When AXREIT IPO in 2005, it has only 6 properties. Now, it has increased to 57 properties as of 30 June 2021.

This is understandable because AXREIT is the only REIT in Malaysia that does not have sponsor. I talked about how sponsor help in injecting new assets into REIT on my previous post about Sunway REIT. But AXREIT does not have such support. Hence, the REIT manager has to work hard to grow the fund.

#3: YIELD-ACCRETIVE ACQUISITION

Now, they don’t just simply acquire any property. According to the Management, these acquisition must be yield-accretive. This means there must not have any dilutive effect, especially on distribution to unitholders.

As of 2Q 2021, AXREIT has completed the following acquisition:

*Option to renew after 1 year tenure at higher rental rate of RM608.3K per month. This brings the property yield to 6.1%.

AXREIT has an average property yield of 7.5% as of 31 Dec 2020. Compare this against all the above acquisition, I think it is yield-accretive. This is because most of it has similar yield to its average except the last one.

#4: BENEFICIARY OF E-COMMERCE BOOM

The e-commerce boom has made several sectors looking attractive again. One of them is logistic sector and this has spill over effect to industrial REITs. For AXREIT, it is its logistic warehouse category. The demand for warehouses or distribution centre is definitely increasing.

Many logistic companies are looking for place to serve as a distribution centre, allowing them to make that last mile delivery. AXREIT in 2019 started its third built-to-suit development for FedEx. Moving forward, I believe this is where AXREIT growth driver is.

#5: POTENTIAL INCREASE IN BORROWING COST

I have talked about this in my previous post on Sunway REIT. Borrowing cost is going to be a concern for all REITs. This includes AXREIT since it has aggressive acquisition and development activities. As of 2Q 2021, it has a total borrowing of RM1.28 billion. This makes its gearing ratio stood at 36%.

58% of its total borrowing is under floating rate. This means if OPR increases, borrowing cost will increase as well. As of 2Q 2021, it has a financing cost of 3.62%. On the bright side, OPR will be increase anytime soon. BNM has recently maintain its OPR at 1.75% again.

#6: INCREASING DISTRIBUTION

Over the past 10 years, this REIT has been paying increasing distribution per unit (“DPU”). However, there is a reduction in DPU in year 2020. This is mainly due to a placement exercise in 2019 which has diluted its DPU.

This is perhaps one area of concern. The aggressive acquisition may sometime require financing through equity. This is because REITs can only use debt financing up to 50% of its total assets. That’s why REITs has to strike a balance between equity and debt financing. Equity financing means rights issue or placement. These type of financing usually will have dilutive effect.

Nevertheless, I believe the DPU will increase moving forward given the strong growth driver from e-commerce boom.

MY INSIGHTS

Overall, this is a good REIT for income investors. Personally, I like the fact that the REIT manager is actively managing it. If you read their earnings report, you can always see their growth plans every quarter.

The only drawback of their aggressive acquisition and development activities is the frequent fundraising exercise needed. This can some time be dilutive in nature and makes the distribution yield unattractive.

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