Date of Report: October 29, 2024
Broker: Maybank Investment Bank Berhad
Overview of Axis REIT
Axis Real Estate Investment Trust (REIT) is a Shariah-compliant REIT based in Malaysia that primarily owns and invests in commercial, office, and industrial real estate. The company focuses on stable income generation through its diverse portfolio, especially favoring industrial properties for their resilient rental income and lower occupancy risks.
Earnings Performance in 3Q24
Axis REIT reported a strong performance for the third quarter of 2024 (3Q24), with its earnings on track to meet projections. Core net profit increased by 9% year-over-year to MYR40.8 million, totaling MYR120.3 million for the first nine months of 2024 (9M24), which represents an 11% year-over-year growth. The growth was driven by recent asset acquisitions and positive rental reversions across its portfolio.
Dividends and Buy Recommendation
The REIT declared a third gross distribution per unit (DPU) of 2.35 sen for 3Q24, bringing the 9M24 total DPU to 6.90 sen. Maybank maintains a “BUY” rating on Axis REIT, with a 12-month target price of MYR2.12, reflecting a 22% upside from the current share price of MYR1.81.
Key Drivers of Earnings Growth
Axis REIT’s robust earnings growth stems from:
- New Asset Acquisitions: Five properties have been added to the portfolio since late 3Q23, along with the completion of Axis Mega DC 2. These new assets have significantly contributed to earnings.
- Positive Rental Reversions: The existing portfolio saw positive rental rate increases, which further bolstered revenue.
Portfolio Expansion and Occupancy
Axis REIT has been proactive in expanding its property holdings, with acquisitions in 2024 totaling approximately MYR700 million. Key acquisitions included:
- Axis Vista 2
- Axis Industrial Facility @ Batu Caves
- Axis Industrial Facility @ Sendayan
- Axis Facility 3 @ Bukit Raja
- Axis Facility 1 @ Pulau Indah
These new assets, valued at MYR351.8 million, were completed in July and October 2024. The portfolio’s overall occupancy rate, as of 3Q24, stood at 90%, slightly down by 2% year-over-year but expected to rise to 94% with the disposal of Axis Steel Centre @ SiLC, which is currently vacant.
Financial Stability and Gearing
Axis REIT maintains a sound financial position with a gross gearing ratio of 0.39x at the end of 3Q24, ensuring adequate leverage for further expansion. The REIT also holds MYR220 million in additional acquisition targets, underscoring its strategy of continuous growth.
Forecast and Outlook for FY25
Maybank anticipates an improved earnings outlook for Axis REIT in FY25, driven by a full-year contribution from the new assets acquired in 2024. The forecast reflects sequential growth in 4Q24, due to higher occupancy at Axis Mega DC 2 and the recent asset additions. Revenue and net property income are projected to grow by 15.8% and 16.2%, respectively, between FY24 and FY25.
Risk Factors
Key risks identified for Axis REIT include:
- Fluctuations in Rental Rates: Changes in rental rates or occupancy could impact earnings.
- Interest Rate Sensitivity: Approximately 50% of Axis REIT’s borrowings are floating rate-based.
- Lease Renewals: With 22% of its net lettable area (NLA) due for lease renewal in FY25, Axis REIT faces potential earnings fluctuations based on lease renewal outcomes.
Key Financial Metrics (FY24 Forecast)
- Revenue: MYR318.8 million
- Net Property Income: MYR273.7 million
- Core Net Profit: MYR167.7 million
- Net DPU: 8.6 sen
- Debt/Assets Ratio: 0.40
