In 4QFY20. Axis REIT’s (AXREIT) realised net profit came in at RM32.3m (+8.6% YoY, +0.8% QoQ) which was within our and consensus expectations. For FY20, Group realized net profit of RM125.5m (+8.1% YoY) constituted c.101% and c.98% of our and consensus full year estimates. During the quarter, the Group completed the acquisition of Axis Shah Alam Distribution Centre 5 for RM95.0m and Axis Industrial Facility at Shah Alam for RM11.9m. As for new acquisitions, it had signed the sale & purchase agreements to acquire three units of 1 ½ storey detached factories located in Kawasan Perindustrian i-Park in Johor for RM28.2m. It also accepted the Letter of Offer to acquire a manufacturing facility located in Shah Alam, Selangor for RM120.0m and a warehouse located in Plentong, Johor for RM75.0m. All in, we understand that it has now close to 1.37m sf of space locked in through tenancy renewals and new tenants secured with 5.6% positive rental reversion achieved for the year from tenancy renewals and contracted step-ups. No change to our earnings estimates. Maintain our Neutral call and DDM-derived TP to RM1.91. Key catalyst for the Group is Phase 2 of the Axis Mega Distribution Center.

• Realised net income rose 8.1% YoY mainly due to the commencement of lease on Axis Facility at Batu Kawan in March 2020 and rental from newlyacquired properties which offset the rental loss from Axis Industrial Facility at Rawang as the tenant redelivered vacant possession in July 2019, and the expiry of tenancy of D8 Logistics Warehouse since end-October 2020. We also understand that during the Movement Control Order in March last year, Axis-REIT had also registered lower seasonal and visitor carpark income. Meanwhile, property expenses were higher mainly due to the enlarged size of the portfolio and also building maintenance expenses which was caused by the collapse of a retaining wall along Sungai Penchala that damaged the driveway at Axis Vista and Axis Technology Center, costing RM945k,000to repair.
   
• Targeting RM135m worth of properties. Axis REIT ended the year with 53 properties (c.10.5m sf and 150 tenants) and total average occupancy of 91%. During the year, the Group completed five acquisitions with purchase consideration of RM258.9m. Asset pipeline is estimated to be worth RM135m with focus on Grade A logistics facilities/manufacturing facilities with long leases from tenants with strong covenants, well-located retail warehousing in locations ideal for last-mile distribution and office, business parks and industrial properties with potential for future enhancement.

Source: PublicInvest Research - 21 Jan 2021