KUCHING: Axis Real Estate Investment Trust’s (Axis REIT) first half of financial year 2017 (1HFY17) results were either within or slightly below expectations while the group’s Kuantan industrial asset acquisition has garnered mixed reactions from analysts.
In a filing on Bursa Malaysia, Axis REIT revealed that for the six months period ended June 30, 2017, Axis REIT recorded a total revenue of RM84.33 million. As per its filing, the group’s net income for the year during the period amounted to RM45.91 million.
Axis REIT’s 1HFY17 core net income of RM46.3 million came in within the research arm of MIDF Amanah Investment Bank Bhd’s (MIDF Research) expectations, at 50 per cent and 47 per cent of its and consensus full year estimates respectively.
On the other hand, Axis REIT’s first half of 2017 (1H17) realised net income (RNI) came in slightly below the research arm of Kenanga Investment Bank Bhd’s (Kenanga Research) but within consensus expectations at 44 per cent and 47 per cent, respectively.
Kenanga Research believed its estimates fell slightly short due to the delay in acquisition of the industrial asset in Pasir Gudang, Johor (RM33 million) which was completed yesterday, but which the research arm already fully accounted in FY17E, and pending completion of the first tranche of the placement in FY17 which would help lower financing cost.
As for Axis REIT’s 1H17 gross dividend per unit (GDPU) of 4.32 sen, it was within Kenanga Research’s expectations, making up 50 per cent of the research arm’s FY17E GDPU of 8.5 sen.
On Axis REIT’s acquisition of an industrial facility in Kuantan, Pahang for RM155 million, Kenanga Research was not surprised as the trust had already announced a Letter of Offer (LO ) back in February 2017 while the expected net yield is decent at seven per cent versus Axis REIT’s recent acquisition yields of seven to 7.5 per cent.
“All in, we are neutral in the near term as we expect the asset to contribute circa four per cent to FY18E earnings which is not overly significant, but we are positive in the long run as we like the long term lease of 15+5 years with a step up of 10 per cent every three years providing long-term stability to the portfolio,” the research arm said.
MIDF Research was also not entirely surprised by the acquisition but was positive on the asset acquisition, as the asset acquisition is yield accretive where net yield of seven per cent is greater than Islamic financing cost of approximately 4.3 per cent.
“The asset is expected to lift FY18 earnings by four per cent,” it said.
Kenanga Research highlighted that Axis REIT had also accepted a LO to acquire an industrial facility in Iskandar Puteri, Johor (on April 7, 2017) for RM50 million.
As asset details are scarce pending the sale and purchase agreement (SPA) announcement, the research arm has yet to build this into its earnings estimates.
Kenanga Research believed the Axis REIT will likely utilise part of the proceeds from the proposed 20 per cent private placement soon, by 2H17 (announced May 24, 2017, not completed) to pare down the group’s gearing which is expected to increase to 0.39-fold in the near term (from 0.34-fold) post the Kuantan asset acquisition.
The research arm noted that this is because Axis REIT’s gearing will breach the group’s internal gearing limit of 0.35-fold.
All in, Kenanga Research made no changes to earnings pending the results and also maintained its target price of RM1.55 per share.
Kenanga Research’s ‘market perform’ call was premised on its neutral outlook for Axis REIT due to the lack of convincing near-term catalysts while most downsides have been accounted for.
“However, being highly institutionalised and one of the few Shariah-compliant Malaysia REITs offer some downside risk protection,” it said.