Axis REIT (AXREIT) registered 1QFY24 realised net profit of RM39.3m (+22.9% YoY, -5.8% QoQ) which is largely within our and consensus expectations. Group realized net profit in the first quarter constitutes about 24% of our and consensus full year estimates. Net property income (NPI) is higher by 10.2% YoY mainly due to commencement of lease for Bukit Raja Distribution Centre 2 (lease started in August 2023 with a monthly rental of RM1.35m), positive rental reversion recorded in FY23 and acquisition of Axis Hypermarket @ Temerloh completed on 16 January 2024. However, Group profits were mitigated by the loss of rental income from termination of lease agreement at Axis Steel Centre @ SiLC, with vacant possession of the property taken back on 7 June 2023. All told, we keep our earnings estimates unchanged and maintain our Neutral call with DDM-derived TP unchanged at RM1.96.

1QFY24 Net Property Income rose 10.2% YoY mainly due to commencement of lease for Bukit Raja Distribution Centre 2 (lease started in August 2023 with a monthly rental of RM1.35m), positive rental reversion recorded in FY23 and acquisition of Axis Hypermarket @ Temerloh completed on 16 January 2024. However, Group NPI was down 0.8% QoQ mainly due to lower occupancy of the existing portfolio. In 1QFY24, a total of RM38.4m has been incurred for major capital expenditure, ie RM2.8m for enhancement of properties of Axis-REIT and RM35.6m incurred for the development of Axis Mega Distribution Center (Phase 2).

Acquisition targets worth RM200m in the pipeline. As per the latest guidance, we understand that the Group is still looking to expand its asset portfolio worth some RM200m with focus on Grade-A logistics facilities and manufacturing facilities with long leases from tenants with strong covenants. The assets targeted will be well-located logistics warehousing in locations ideal for last-mile distribution. In addition, the Group is also looking at office, business parks and industrial properties with potential for future enhancement. During the quarter under review, the property portfolio size of AXREIT remains at 63 properties as at 1QFY24 with total assets under management valued at RM4.59bn. It has signed 4 sale and purchase agreements so far worth about RM450m.

Source: PublicInvest Research - 24 Apr 2024