Solid earnings outlook for Axis-REIT, thanks to acquisitions

PETALING JAYA: The earnings outlook for Axis-REIT Managers Bhd is expected to remain resilient given the group’s active acquisition strategy on industrial assets.

According to Maybank Investment Bank (Maybank IB) Research, the acquisition of industrial assets generally entailed resilient rental income and lower occupancy risks.

Year-to-date, Axis-REIT has completed the acquisition of five industrial properties in Johor and Selangor respectively.

In its latest report, Maybank IB said it is positive on Axis-REIT’s recent proposed acquisition of a logistics warehouse in Johor for RM32mil.

The warehouse comprised of a block of single storey warehouse with a mezzanine floor and three blocks of single-storey warehouse in Pasir Gudang.

The deal also entails a three-year leaseback agreement with fixed rental rates of RM3mil per annum.

Axis-REIT expects the deal to be completed by the first half of 2022, said the research house.

Maybank IB also described the latest proposed acquisition as “a yield accretive deal” for the group.

“Assuming a 95% net property margin, we derived a net property yield of 8.5%.

“This is higher than our estimated weighted average cost of capital of 4.5% (debt:equity 40:60) – a yield accretive deal,” it added.

Maybank IB also estimated the purchase would result in Axis-REIT’s gross gearing at 0.38 times, which is largely unchanged.

“Based on a gearing limit of 0.6 times, we derive a max debt headroom of approximately RM830mil based on its end-Q321 gross gearing,” said the research house.

The research house, which has a “buy” call on Axis-REIT, is also maintaining its earnings forecasts and dividend discount model-target price of RM2.20.

“We are keeping Axis-REIT as our sector’s top pick, mainly attributed to its resilient rental income from industrial assets and active acquisition strategy,” it added.

However, there are several risk factors that could impact the earnings estimates, target price and rating for Axis-REIT, said the research house.

It noted that the changes in rental rates, occupancy rates, operating expenses and interest rates may lead to lower earnings for Axis-REIT.

This is given that about 42% of Axis-REIT’s borrowings are based on the floating rates while about 19% of Axis’ net leasable area is due for lease renewal in FY21.

Another earnings risk for the group would be if the economic impact from Covid-19 is prolonged, added Maybank IB.

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