1QFY21 RNI of RM32.2m came in within our and market expectations, while dividend of 2.23 sen is also within, all at 23%. Occupancy remained stable at 91%, with minimal lease expiries (<20% p.a.) of which it has locked in 76% of expiring leases. Going forward, we expect the Group’s positive reversion track record to maintain and keep our OUTPERFORM call. TP is raised to RM2.30 (from RM2.25) post rolling valuation forward to FY22E GDPU of 9.9 sen on a 1.0ppt spread (lower-end among MREITs), due to its earnings stability and resiliency throughout the pandemic.

1QFY21 realised net income (RNI) of RM32.2m came in within our and market expectations, at 23% each. The Group also declared 1QFY21 dividend of 2.23 sen (of which 1.73 sen is taxable and 0.50 sen is non-taxable), which also met our FY21 estimate of 9.7 sen at 23%, implying 4.5% gross yield.

Results’ highlights. YoY, top-line was up by 3.5% on rental from seven newly acquired properties over the year. Meanwhile lower expenditure (- 4.7%) due to lower administrative cost, allowed RNI to increase by 6.5%. Gearing remained low at 0.33x (vs. 0.30x in 1QFY20). QoQ, top- line was down by 2.3% but this was mainly due to movement in unbilled lease income receivable which is a component of top-line that is not distributable and expensed out. Excluding the non-distributable portion, rental income was effectively up by 0.2% due to contributions from four new property acquisitions completed during the quarter, but partially offset by rental loss from the expiry of tenancy of D8 Logistics Warehouse since end-October 2020, which is expected to see a rebound in occupancy to 100% by 2QFY21. All in, RNI was down marginally by 0.5% on higher expenses (+3.3%) and finance cost (+0.8%) from new acquisitions.

Outlook. FY21 is expected to see minimal leases expiring at 18% of portfolio NLA, of which the Group has already secured renewals for 76% of these leases (vs. 32% in 4QFY20) on positive reversions, while FY22 will see 21% of leases up for expiry. In the near term, the Group is actively eyeing industrial assets worth a total of RM135m, focusing on Grade A logistics located in Selangor, Penang and Johor and will continue to target acquisitions with net yield of >6%.

Maintain FY21-22E RNI of RM140.5-142.8m which will be driven by single-digit positive reversions, gradual improvement in occupancy to 93- 94% in FY21-22 (from 91% currently) and positive contributions from acquisitions completed in 1QFY21. Our FY21-22E GDPU of 9.7-9.9 sen implies gross yield of 5.0-5.1%.

Maintain OUTPERFORM and increase Target Price marginally to RM2.30 (from RM2.25) post rolling valuation forward to FY22E GDPU/NDPU of 9.9/8.9 sen on an unchanged +1.0ppt spread, at historical average SD, to the 10-year MGS target of 3.30%. Our applied yield spread is at the lower-end among MREITs under our coverage (of average to +0.5SD) due to its portfolio resiliency. We continue to favour AXREIT which is our Top Pick for its; (i) earnings stability during this pandemic given its exposure to the resilient industrial segment, (ii) minimal lease expiries (<20% of portfolio p.a.), (iii) long-term leases during these uncertain times (WALE of 5.7 years vs. prime retail REITs’ WALE of c.2-3 years), and its (iv) low gearing of 0.33x (vs. MREITS’ gearing limit of 0.60x), positioning it well to take advantage of acquisition opportunities which may emerge under the challenging market conditions.

Source: Kenanga Research - 22 Apr 2021