HLIB Research slightly optimistic of Axis REIT
KUCHING: Following a recent meeting with the management team of Axis Real Estate Investment Trust (REIT), the research arm of Hong Leong Investment Bank Bhd’s (HLIB Research) came away feeling slightly optimistic of the REIT’s progress.
HLIB Research recapped that financial year 2015 (FY15) gross revenue of RM165.68 million was translated into normalised net profit of RM94.2 million with distribution per unit (DPU) of 8.4 sen (yield at 5.4 per cent).
“Overall occupancy rate was healthy at 92 per cent while tenant retention rate and rental reversion were at 82 per cent and eight per cent, respectively.
“The vacant spaces translate to a potential DPU upside of two sen,” it said.
To the research arm’s comfort, management shared that take up rate has been improving in the fourth quarter of FY15 (4QFY15).
It noted that management is also more optimistic moving forward and improving the retention rate for the upcoming 27.6 per cent of net lettable area (NLA) expiry.
According to HLIB Research, apart from the ongoing acquisitions of logistics warehouse in Nusajaya and Pasir Gudang (which it has yet to factor in), upcoming potential acquisitions in various locations amount to circa RM369 million.
As such, the research arm noted that growing the assets under management (AUM) to reach RM3 billion by 2018 is on track.
“However, as the gearing is now close to the internal threshold of 35 per cent, potential dilution maybe on the cards.
“Consequently, future acquisitions will likely be funded mainly by placement of up to 20 per cent new units, potentially raising more than RM320 million (assuming five per cent discount),” it said.
In an update on properties, HLIB Research pointed out that PDI Centre may need to be taken off the book given that development is not allowed under REIT guidelines to develop it into a 1.2 million square feet (sq ft) mega distribution centre.
The research arm noted that while the potential injection of this centre could fetch as high as RM400 million, the earliest timeline would be in the second half of 2018 (2H18).
“Whereas Axis Business Campus is expected to undergo refurbishment to become multi-tenanted properties moving forward, with potential income of RM4-5 million per year,” it said.
On the seamless transition, HLIB Research noted management shared that the strategy and vision are still largely intact with the stance as a long-term real estate investor prioritising capital value gain.
“The team is well-structured to run efficiently with little fuss post transition of the management,” the research arm said.
The research arm added that in times of uncertainties, REIT may be a good haven for yield return given its defensive nature, reinforced by the scarcity of syariahcompliance status in this sector.
All in, HLIB Research maintained its ‘hold’ call on Axis.