Positive earnings outlook for Axis REIT

KUALA LUMPUR: Analysts are recommending “buy” on Axis Real Estate Investment Trust (REIT) in anticipation of improved occupancy rates and contribution from new acquisitions to bolster earnings.

The REIT recently announced its 1Q24 results, which came within expectations, according to the research units of Hong Leong Investment Bank (HLIB), RHB Investment Bank and Kenanga Investment Bank.

HLIB Research said in a company update it upgraded its call to “buy” from “hold” as it believes Axis REIT’s prospects are improving on the back of three impending acquisitions that are expected to be completed in FY24 (two in 1H24 and one in 2H24), as well as further low to mid-single digit rental reversions for FY24.

Axis REIT had completed the acquisition of a hypermarket in Temerloh, Pahang, for RM25.75mil in January 2024.

It is also in the process of acquiring a manufacturing facility in Sendayan Techvalley Industrial Park, Seremban, for RM49mil, as well as two more manufacturing facilities in Bukit Raja for RM48mil and RM313mil respectively.

In addition to the prospective new contributions, HLIB said there would be a further boost should Axis REIT raise its overall portfolio occupancy by securing a tenant for Axis Steel Centre @ SilC, which remained unoccupied following the expirty of a short-term lease in 4Q23.

Similarly, Axis Mega Distribution Centre (AMDC) Phase 2 in Klang remains untenanted as it had just completed development works on March 27, 2024.

“Should Axis Steel Centre @ SiLC and Axis Mega DC 2 be leased within the year, its portfolio occupancy will recover from the current 89% and lead to improved earnings in subsequent quarters,” said HLIB.

RHB Research, in its own report, said the inclusion of AMDC Phase 2 would mean an additional 509,000 sq ft of property, growing the REIT’s porfolio net lease area by about 7%.

“We expect earnings to grow y-o-y in 2H24, as the development of (AMDC) Phase 2 was completed at end-March,” it said.

Meanwhile, Kenanga Research expects Axis REIT’s occupancy rate to rise and to eventually fill 14 out of its total 63 properties that are currently taken up.

“We hold the view that the prospects for industrial assets are stable given the sustained inflow of foreign direct investment, a robust export sector (partly benefitting from the weak ringgit), and a growing consumer market, particularly the e-commerce segment, creating demand for large-scale distribution hubs,” it said in a results note.

It added, however, that the increased demand is partially offset by the influx of new supply.

HLIB increased its target price on Axis REIT to RM2.04 from RM1.86 previously after raising its FY24/25 forecasts by 1.8%/1.9% respectively.

RHB maintained its “buy” call on Axis REIT and target price of RM2.11, while Kenanga reiterated “market perform” with an unchanged target price of RM1.72.

For the first quarter ended March 31, 2024, Axis REIT’s net profit rose to RM42.27mil from RM30.30mil in the previous corresponding quarter, while revenue improved to RM75.54mil from RM70.17mil a year earlier.

Basic earnings per share stood at 2.42 sen compared to 1.74 sen previously.

Axis-REIT said it has proposed to distribute 99% of its realised income available for distribution generated from operations for the first quarter of 2024.

“Coupled with our continuous lookout for Grade A logistics facilities and manufacturing facilities to boost our portfolio, we are optimistic the fund will continue to deliver good results for the rest of the year,” said Axis-REIT Managers Bhd chief executive officer and executive director Leong Kit May