Axis REIT eyes RM190m worth of assets

This article first appeared in The Edge Financial Daily, on August 13, 2018.
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KUALA LUMPUR: Axis Real Estate Investment Trust (REIT) hopes to complete RM190 million worth of industrial asset acquisitions by the end of next year, said the trust’s manager.

Axis REIT Managers Bhd (ARMB) said it has identified the assets for acquisition, and negotiations with the sellers are ongoing and expected to take at least six months.

The focus is on Grade A logistics facilities and manufacturing facilities with long leases from tenants with strong covenants, and well-located retail warehouses in locations that are ideal for last-mile distribution.

The company is also looking at office space, business parks and industrial properties with potential for future enhancement, said ARMB chief executive officer Leong Kit May.

Leong told The Edge Financial Daily that all the assets are located within Malaysia. But she does not discount the possibility of the company acquiring overseas properties in the future. “Stringent due diligence needs to be done in order to go overseas and hedging costs must be included,” she added.

Aside from the potential new acquisitions, Axis REIT will also focus on completing pending acquisitions, which include two manufacturing facilities in Indahpura, Johor worth RM38.7 million and a manufacturing facility in Senawang, Negeri Sembilan at a cost of RM18.5 million. Both acquisitions are slated for completion in the second half of this year.

Axis REIT’s portfolio had increased to 42 assets comprising 8.86 million square feet as at June 30, up from 40 assets comprising 8.09 million square feet as at end-2017. This translates into an increase of 9.76% in total assets under management of the trust to RM2.7 billion from RM2.46 billion previously.

By net lettable area, the warehouse and logistics segment contributes the most with 45%, followed by manufacturing facilities, office/industrial, office and hypermarkets with 28%, 17%, 6% and 4% respectively.

Axis REIT expects the revenue and distribution per unit (DPU) to continue to grow in the second half of 2018 as it will benefit from the ongoing acquisitions and improved occupation rate.

Leong said the recently completed Axis Shah Alam Distribution Centre 4 and lease commencement in June for the Nestle Distribution Centre will contribute an additional income of RM2.1 million per month going forward. The two assets have fixed leases of six years and 10 years respectively.

On top of that, the ongoing acquisition of manufacturing facilities in Johor and Negeri Sembilan and the REIT’s second build-to-suit development — Axis Aerotech Centre @ Subang, which is targeted to be completed on Dec 15 — will also contribute positively to the trust.

For the second financial quarter ended June 30, 2018 (2QFY18), Axis REIT’s net property income rose 15% to RM26.83 million from RM23.27 million a year ago. Revenue rose 14% to RM47.45 million from RM41.64 million.

Axis REIT recorded a net realised income of RM24.42 million for 2QFY18, against RM23.68 million in 2QFY17.

The REIT has declared a second interim distribution of two sen per unit, payable on Sept 7. As as June 30, the REIT had distributed a total DPU of 3.94 sen.

Meanwhile, Axis REIT is also working on enhancing the occupancy of its existing assets. By filling the vacant space, the REIT expects the DPU to rise to 1.1 sen per unit.

As at June 30, Axis REIT’s portfolio had shown an improvement in occupancy rate to 94% from 91%.

As at Dec 31, 2017, of its portfolio, 31 properties were fully occupied and only 10 properties had vacancies and one was undergoing development — Axis Aerotech Centre @ Subang. This was coupled with a positive rental reversion of 5% year to date (YTD).

There are around 15.4%, or 1.36 million square feet, of the portfolio’s net lettable assets due for renewal in 2018. Another 61.6% of the space was renewed in the first half of 2018.

Properties with an occupancy rate of below 90% are Fonterra HQ, Wisma Academy Parcel, Infinite Centre, Wisma Kemajuan, Axis Technology Centre, Menara Axis, Axis Business Park, Quattro West and Axis Business Campus.

For Axis Business Campus, one of its properties with the lowest occupancy rate (29%) and lowest yield (2.1%), Leong said the asset has locked in a new tenant. Thus, she expects its occupancy rate to improve to 62% and yield to be enhanced to 4% by year end.

YTD, all 42 investment properties have generated an 8.2% average net yield. FCI Senai, Crystal Plaza and Strateq Data Centre were the top three investment assets with net yields of 12.4% to 13.6%.

Leong said most of the REIT’s properties were bought at yields of approximately 7% on average.

“Over time, with our enhancement and the reposition of the assets, we are able to improve the yield, and will continue to do so,” she said without disclosing a target.

Axis REIT’s share price closed three sen lower at RM1.52 last Friday, valuing the trust at RM1.87 billion.