Axis-REIT’s largest acquisition a boon to earnings

PETALING JAYA: Analysts are optimistic about Axis Real Estate Investment Trust’s (Axis-REIT) portfolio following the acquisition deal of a logistics warehouse under a 10-year sublease agreement for RM390mil, its largest acquisition to date.

The research houses said the latest green building acquisition would contribute actively to the company’s property income and financial year earnings while enlarging its asset portfolio.

In CGS-CIMB Research’s view, the group continued to deliver on its asset portfolio growth strategy focusing on the niche logistics warehouse space while enhancing its environmental, social and governance (ESG) visibility with green building assets.

It noted the total number of assets under Axis-REIT’s portfolio at 58 with an average occupancy rate of 96% at the end of financial year 2021 (FY21).

The research house estimated the net property income (NPI) at RM22.9mil per annum for the acquisition and there is growth via a ramp-up in asset acquisition in FY22.

The estimated NPI works out to 7.1% of FY22 earnings-per-share (EPS) due to the half year’s contribution and 13.1% of FY23 to FY24 EPS on a full-year basis, according to the research house.

Axis-REIT is among the two preferred REIT sector picks for the research house based on the estimated dividend yield of 5.2% to 5.9% in the coming years.

The research house retained its “add” call with a target price of RM2.34 per share while noting the downside risk to be the negative rental reversions for the renewal of expiring leases in FY22.

Meanwhile, Hong Leong Investment Bank (HLIB) Research said the new asset would improve Axis-REIT’s coming financial year earnings by 2% to 2.8%.

“We are positive on the acquisition as it is accretive at NPI yield of 6.7%, comparable with its current NPI portfolio yield,” said HLIB Research.

The research house said the acquisition price of RM339 per sq ft is reasonable due to its strategic location.

HLIB Research maintained its “buy” call with a target price of RM2.10 per share based on a targeted yield of 4.6% on FY23 distribution per unit (DPU).

Maybank Investment Bank (Maybank IB) Research is mildly positive on the proposed acquisition. Axis-REIT remained as its top pick due to its resilient rental income from industrial assets and active acquisition strategies.

“Assuming a 95% net property margin, we have derived net property yields of 6.3% to 6.8%, based on lease term of 10 years. These are higher than our estimated weighted average cost of capital of 5.3% (debt:equity 40:60),” it said in a research report.

“To recap, year to date (y-t-d) for FY22, Axis-REIT has completed two industrial properties purchases in Johor in March,” it pointed out.

The research house maintained its “buy” call with a target price of RM2.30 per share while noting the risks to be changes in rental rates, occupancy rates, operating expenses and interest rates that may lead to lower earnings for Axis-REIT.

Axis-REIT has entered into a sale and purchase agreement with Equalbase PTP Sdn Bhd to acquire a logistics warehouse facility with a total net lettable area of about 1.15 million sq ft.

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