Thursday 28 Mar 2024
By
main news image

This article first appeared in The Edge Financial Daily on August 15, 2019

Axis Real Estate Investment Trust
(Aug 14, RM1.87)
Maintain buy with a higher target price (TP) of RM2.05:
Axis Real Estate Investment Trust (Axis REIT) has announced another acquisition of two assets in Taman Teknologi Nusajaya, Iskandar Puteri, Johor, making up four acquisitions announced year-to-date. We continue to like Axis REIT given its defensive and stable earnings growth. It is our sector’s top pick, with the highest total return in the sector.

The two freehold properties are acquired from Nusajaya Tech Park Sdn Bhd. The first property, with three detached factories and total net lettable area (NLA) of 104,694 sq ft, was acquired for a total cash consideration of RM42 million. The second property, with a detached factory and a total NLA of about 42,067 sq ft, was acquired for a cash consideration of RM13.8 million.

Both properties have existing tenants — GKN Engine Systems Component Repair Sdn Bhd and Sternmaid Asia Pacific Sdn Bhd. The first tenant is in the business of repair and maintenance of transport equipment. It has a fix leasing tenure of six years expiring in July 2024, with an option to renew for another six years for about RM261,736 per month.

The second tenant is in the manufacturing and product development of ingredients and additives for food and nutritional supplements. It has a fix leasing tenure of a five-year rental term expiring in August 2022, with an option to renew for another five years for RM92,550 per month.

The acquisition will be fully funded by borrowings. We expect the proposed debt financing to raise Axis REIT’s gearing by about 1% to 41% in its financial year ending 2020 (FY20). This is still below the gearing limit of 50% prescribed by the Securities Commission Guidelines on Listed Real Estate Investment Trusts.

We are mildly positive on the acquisition despite the assets having a decent net asset yield of 7-8% as the size of the acquisition is small — only about 2% to its bottom line. This acquisition is expected to be completed by end-2019, and should increase the number of properties owned by Axis REIT to 49 next year.

With this acquisition, we revise slightly our FY20F-21F (forecasts) by 2%. As such, we also raise our TP slightly to RM2.05 from RM2. We continue to like Axis REIT given its defensive and stable earnings growth. In the meantime, a potential rate cut next year would be a positive to the sector, given the wider yield spread of government bonds. — RHB Research Institute, Aug 14

      Print
      Text Size
      Share