AXIS REIT (AXREIT) announced the acquisition of 2 assets located within Kawasan Perindustrian Bukit Raja from Amsteel Mills Sdn Bhd for RM351.8m. The two sale and purchase agreements signed were to acquire an industrial complex (for RM313m) and an open storage yard (for RM38.8m). We understand that these new assets are located adjacent to AXRB’s existing properties and currently have total market value of RM353m, slightly higher than the proposed acquisition price. The industrial complex will be leased back to Amsteel (Year 1-3 for monthly rental of RM1.83m, Year 4-6 for monthly rental of RM1.92m) at gross rental yield of about 7% and about 5% rental reversion after 3 years. The proposed deal is expected to increase the Group’s gearing ratio to 39.1%, still below the gearing limit of 50% set by Securities Commission Malaysia. All told, we keep our earnings estimates unchanged pending the deal completion expected by 4Q24 (Industrial complex) and end 2026 (open storage yard). Maintain Neutral call with DDM-derived TP unchanged at RM1.96.

• Property details. We understand that the new properties are located withinthe prime industrial area of Kawasan Perindustrian Bukit Raja, withaccessibility to major highways like Federal Highway, Shapadu Highway,North Klang Valley Expressway and the West Coast Expressway. Uponcompletion of the deals, the Group will have a significant presence withinBukit Raja with properties sitting on a total land area of 119.12 acresconsisting of Bukit Raja Distribution Centre (17.73 acres), Bukit RajaDistribution Centre 2(20.75 acres) and Axis Facility 2 @ Bukit Raja (5.57acres). The industrial complex will be leased back to Amsteel for another 6years while the open storage yard will be leased to a new tenant or earmarkedfor redevelopment if necessary.

• Acquisition targets in FY24. These newly announced deals are in line withits investment objectives by acquiring high quality, earnings accretiveproperties with strong recurring rental income and we believe that the Groupstill has acquisition pipelines of RM170m in FY24. The Group is still lookingto expand its asset portfolio with focus on Grade-A logistics facilities andmanufacturing facilities with long leases from tenants with strong covenants.The assets targeted will be well-located logistics warehousing in locationsideal for last-mile distribution. In addition, the Group is also looking at office,business parks and industrial properties with potential for futureenhancement.

Source: PublicInvest Research - 23 Apr 2024