ANALYSTS are mixed over Axis Real Estate Investment Trust’s (REIT) latest fourth quarter results ended Dec 31, 2019.
Affin Hwang Capital was positive on the company for its strong management team and attractive 5.4% yield expected for 2020. The research house has maintained its buy recommendation on the company with a target price of RM1.97.
However, MIDF Research has maintained its neutral view on the REIT, revising lower its target price to RM1.73 from RM1.75.
“We revise downwards our FY20/21F earnings forecast by 2.5% as we assume higher property expenses. Correspondingly, we revise downward our TP for Axis REIT to RM1.73 from RM1.75. Our TP is based on dividend discount model (required rate of return: 7.5%). We maintain our neutral recommendation on Axis REIT due to limited upside for unit price,” it said.
MIDF highlighted that the company’s FY19 core net income missed expectations due to higher than expected property expenses. These higher figures were mainly due to expenses for three newly acquired assets in FY19.
The research firm said Axis REIT was on an acquisition trail to expand its portfolio. Acquisition targets include Grade A logistics facilities and manufacturing facilities, retail warehousing in locations ideal for last-mile distribution, and industrial assets with potential for future enhancement.
For Affin Hwang Capital, after it attended Axis REIT’s 4Q19 results briefing, the analyst walked away feeling more assured on its business outlook.
“Management continues to see good acquisition opportunities and identified RM135 mil worth of acquisition targets in 2020. Elsewhere, we are pleased to hear of the strong interest in Axis Industrial Facility @ Rawang; however, we sense that securing a tenant for the Axis Mega Distribution Centre 2 may take some time.
“All in, we continue to like Axis REIT for its industrial / warehouse asset portfolio, strong management team and attractive 5.4% yield for 2020E. We reiterate our buy rating on Axis REIT with an unchanged DDM-derived price target of RM1.97,” the research house said.
Axis REIT registered a strong take-up rate of 96% on 2.1 million sq ft of space whose tenancy expired in 2019, and which represented 22% of its Net Lettable Area (NLA), with positive rental reversion of 2%.
Out of Axis REIT’s 2.13 million sq ft of space which expired in 2019 (22.4% of total NLA), 96% was taken up, of which 84% was renewals. These renewals / new tenancies delivered a positive rental reversion of 2%.
The high retention rate and positive reversion imply robust demand for Axis REIT’s properties, and its strong execution capabilities. Moving into 2020, a number of leases accounting for 17.7% of total NLA are set to expire.
Affin Hwang Capital expected Axis REIT to maintain a high retention rate with positive rental reversions of 2%.
Axis REIT posted a higher net profit of RM127.45 mil in 4Q19 from RM66.99 mil a year ago despite registering a lower revenue of RM54.58 mil versus RM59.48 mil. For the full financial year, the REIT saw an increase in net profit to RM209.24 mil from RM154.98 mil in the previous year while revenue rose to RM216.41 mil from RM204.36 mil.
At noon today, Axis REIT shares were traded at RM1.78, down one sen from yesterday’s close with 203,400 shares changing hands. – Jan 22, 2020
