KUALA LUMPUR: Hong Leong Investment Bank (HLIB) Research views Axis Real Estate Investment Trust's (Axis REIT) recent deals to acquire two properties in Kawasan Perindustrian Bukit Raja, Shah Alam, positively due to the higher yield they offer compared to Axis REIT's 6.2 per cent gross rental yield in financial year 2023 (FY23).
According to the firm, based on the projected monthly rental income for Property 1, the property is anticipated to yield 7.0 per cent in gross rental yield for the first three years, increasing to 7.4 per cent for the subsequent three years.
"Additionally, the acquisition price for Property 1 is estimated at RM339 per square foot, which is deemed attractive considering it is lower than some industrial properties in the area priced around RM450 per square foot.
"However, it's worth noting that Property 2 will remain income-less until a new tenant is secured.
"Furthermore, upon completion of this acquisition, Axis REIT will significantly expand its presence in Bukit Raja, with properties spanning approximately 119.1 acres," it added.
HLIB Research said its projected earnings per unit (EPU) for the financial year 2025 (FY25) is expected to rise by 3.4 per cent, upon completion of the acquisition by the end of the fourth quarter of 2024 (4Q24) and its commencement of contribution by the first quarter of 2025 (1Q25).
"The proposed debt financing will elevate Axis REIT's gearing ratio to 39.1 per cent of audited total assets as of financial year 2023 (FY23), compared to the fourth quarter of 2023 (4Q23) gearing ratio of 34.4 per cent.
"Our forecast remains unchanged pending the completion of the mentioned corporate transaction," it said.
HLIB Research maintains its 'Hold' call on Axis REIT with a target price of RM1.86, pending the release of its first quarter 2024 (1Q24) results today.
Axis REIT recently entered into agreements to purchase an industrial property (Property 1) and an open storage yard (Property 2) from Amsteel Mills Sdn Bhd for a total of RM351.8 million.
Property 1, adjacent to Axis Facility 2, spans 924,000 square feet and is fully occupied by AMSB, while Property 2, situated across Axis Facility 2, is currently used as a storage yard with plans for future tenant rental.
According to HLIB Research, after acquisition, Property 1 will be leased back to AMSB for six years, generating monthly rental income increasing from RM1.8 million to RM1.9 million over three years.
"Property 1 is expected to be completed by the end of the fourth quarter of calendar year 2024 (4QCY24), while Property 2's vacant possession is anticipated by the end of calendar year 2025 (CY25)," it added.
