Axis REIT - Smooth As SiLC

Axis REIT (Axis) yesterday announced the proposed acquisition of an industrial asset in the SiLC industrial area, Johor. We view this positively, as it may help to further drive its earnings growth. Axis is targeting to complete the injection by year-end. We lift our FY15F estimates by 5% after imputing the contribution from this acquisition.Our TP rises to MYR3.60 post earnings revision. Maintain NEUTRAL. 

New yield-accretive acquisition. Axis has announced the proposed sale-and-leaseback of a steel fabrication facility in the Southern Industrial and Logistics Clusters (SiLC) industrial area, Johor, for total consideration of MYR153.5m. The gross asset yield is decent, at about 7.6%. The asset has a total gross floor area (GFA) of 504k sq ft, and comprises six buildings. The asset will be funded entirely through debt.The REIT expects to ink the deal by year-end. Based on the announcement, the tenant will be signing a 15-year lease with a rent step-up of 10% every three years. 

Positive prospects ahead. Axis had previously guided that it could beinjecting more assets into its portfolio by year-end. Although there could be concerns on the assets’ location within the Nusajaya region, we believe that Axis will be insulated from any vacancy risks. This is due tothe assets’ long-term lease and that fact that industrial assets remain popular in Johor despite the property market slowdown. Post-acquisition, management expects its gearing to increase to 0.39x, which is still below the Securities Commission’s 0.5x gearing cap. That said, we expect gearing to be pared down to c.0.34x in FY15 once the Axis completes the placement of about 83.5m new units by early-2015. 

Earnings forecasts. We do not expect any major impact to our FY14 earnings forecasts. However, we lift our FY15F earnings by about 5% after imputing the contributions from this acquisition.

Maintain NEUTRAL. We maintain NEUTRAL on Axis, but raise our DDM-based TP to MYR3.60 (from MYR3.34) after we revised our earnings estimates and ascribe a lower COE of 7.38% (vs. 7.51%previously). We view its aggressive asset acquisitions in recent months positively and believe that more yield-accretive acquisitions could be in the cards going forward to further drive earnings growth.

 

 

 

 

 

 

 

 

 

 

 

Source: RHB