Unexciting near-term outlook for Axis REIT on lack of acquisitions
KUCHING: Ana lysts are expecting an unexciting nearterm outlook for Axis Real Estate Investment Trust (Axis REIT) due to a lack of favourable acquisitions and disposals.
According to the team at Kenanga Investment Bank Bhd ( Kenanga Research), the group lacked strong accretive catalysts in the near term as all of its recent acquisitions and disposals have been at most mildly positive to the group’s distribution per unit ( DPU) or earnings per share ( EPS).
For example, the group’s most recent disposal – Axis Eureka, a four storey office building located in Cyberjaya – was viewed neutrally by analysts as gains from the disposal were opined to be rather subtle.
The disposal was completed in March, 2017 and gains from its disposal were included in the group’s first quarter financial year 2017 ( 1QFY17) dividend distribution (0.05 sen gains per share).
Kenanga Research noted that the remaining gains on distribution of 0.07 sen per share will be distributed in the second interim distribution.
Meanwhile, the research arm of MIDF Amanah Investment Bank Bhd ( MIDF Research) opined that the loss of income from Axis Eureka would drag the group’s core net income for FY17.
The earnings growth is expected to rebound in FY18 however, as Midf Research is predicting a healthy 8.6 per cent year over year ( y- o- y) growth as they expect earnings contribution from Axis PDI – the groups’ automotive logistics facility in Klang, following of the Nestle Distribution Centre on it.
On acquisition plans, the REIT has guided that it will be expanding its exposure in industrial assets with two ongoing asset acquisitions in Johor and one in Pahang.
However, so far only the f inal ising completion of its acquisition of Kerry Warehouse in Johor for RM33.0 million is set in stone.
“Axis REIT also accepted a Letter of Offer ( LO) to acquire an industrial facility in Pahang on Feb 12 for RM155.0 million, and an industrial facility in Johor on April 7 for RM50.0 million.
“However, as asset details are still scarce and pending the Sale and Purchase Agreement (SPA) announcement, we make no changes to our FY17-18 earnings estimates of RM103.2 and 108.1 million respectively,” Kenanga Research commented.
The research arm went on to point that if the two acquisitions do indeed come to fruition, it is likely that Axis REIT will require proceeds from a placement to fund these acquisitions as its current gearing of 0.34 fold is close to its internal gearing limit of 0.35 fold.
Looking forward, both analysts are expecting a flattish earnings outlook for the group for FY17.
Kenanga Research however notes that there is some upside to Axis REIT’s unique position as one of the few syariah- compliant REITS as it will help to offer some downside risk protection.