Case Study:  

Axis REIT  
(March 22, 2018) 

Step #1:  
What does it do?  

Axis REIT is an Islamic REIT that invests in business space & industrial real
estate in Malaysia.

Step #2:  
Track Record of Growth 

There are two types of REITs: one that grows its portfolio consistently while
the other one is happy to maintain its current portfolio size for a long time. I
personally prefer one that grows consistently as I’m intend to receive growth
in income and build wealth consistently over the long-term.

Thus, let me check whether Axis REIT has built a track record of Growth in
the past 10 years:

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Source: Annual Reports of Axis REIT

Evidently, Axis REIT is the first type of REIT: the one that grows. Since 2005
when it was listed, Axis REIT has increased its portfolio from 5 properties to
40 properties as at 31 December 2017. It has substantially increased its spaces
of management from 1.7 million sq. ft. in 2005 to 8.1 million sq. ft. in 2017.

Step #3:  
Financial Results  

The continuous growth in portfolio should translate into continuous growth

in gross revenue and distributable income for Axis REIT. I’ve discovered:

a. Gross Revenue
Axis REIT has increased its gross revenue since its listing in 2005. It
has grown from RM 40.9 million in 2006 to RM 172.7 million in
2017.

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 b. Income Distributed
As such, Axis REIT has grown its income distributed to shareholders
from RM 22.4 million in 2006 to RM 92.7 million in 2014 before Axis
maintained RM 90-92 million in income distribution in 2015 - 2017.

Source: Annual Reports of Axis REIT

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This should also be translated into higher distributions per unit (DPU). Axis
REIT has paid out continuous growth in DPU from 6.48 sen in 2006 to 9.88
sen in 2014 before recording at slight dip in DPU to 8.0-8.5 sen in 2015 -
2017. This is due to slight increment in number of units of Axis REIT over
the last 3 years due to private placements and distribution reinvestment plan
(DRP) being implemented on a regular basis.

Source: Annual Reports of Axis REIT (adjusted to its current no. of units)

Step #4:  
Lease Profile  

As at 31 December 2017, Axis REIT has reported to enjoy 91.12% occupancy

rate for its property portfolio. 28 of its 40 properties are fully occupied. 11 of
its properties do carry some vacancies while one property is currently being
developed. The weighted average lease expiry (WALE) of Axis REIT is 5.87
years based on rental value.

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Step #5:  
Property Development  

Axis REIT has completed two development projects. They are:

a. Nestle DC @ Axis Mega Distribution Centre

This property has a net lettable area (NLA) of 515,000 sq. ft and is
valued at RM 261 million. It is handing over to its tenant with lease
commencing on 1 June 2018 for over a 10-year period where its rent
rates start at RM 19.2 million a year.

b. Upeca Facility @ Malaysia International Aerospace Centre

Technology Park, Subang
Axis REIT has spent RM 19.9 million to lease 7.02 acres of land from
Malaysia Airlines Holdings Bhd (MAHB). On the piece of land, Axis
REIT would develop a manufacturing facility based on specifications
given by Upeca. The development cost for this project is estimated to
be RM 46.8 million. Upon completion, Axis REIT leases the property
to Upeca for 20 years at starting rent of RM 5.6 million a year.

Step #6:  
Major Acquisitions 

Axis REIT has completed the following acquisitions:

a. Wasco Facility - Gebeng, Pahang

This property is purchased for RM 155 million and is now leased to a
single tenant: Wasco Coatings Malaysia Sdn Bhd for a fixed period
of 15 years at starting rent of RM 11.7 million a year.

In addition, it has several ongoing property acquisitions:

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 a. 4 Factories in Indahpura, Johor
On 11 November 2015, Axis REIT has announced the proposal to
buy 4 single-storey industrial factories at Kawasan Perindustrian
i-Park at Indahpura, Johor for RM 61 million. The property is
currently leased to Beyonics Technology (Senai) Sdn Bhd for a fixed
term of 10 years starting from 1 August 2015.

On 28 January 2016, the acquisition of one of the 4 factories has

been completed for RM 14.2 million. The purchases of the other 3
factories are still ongoing and are targeted to be completed in 1H
2018.

b. Warehouse Facility in Shah Alam, Selangor

Axis REIT is acquiring this property for RM 87 million and targets to
complete this acquisition by 2H 2018.

c. Manufacturing Facility in Senawang, Negeri Sembilan

Axis REIT is acquiring this property for RM 18.5 million and targets
to complete this acquisition by 2H 2018.

Thus, we had covered Axis REIT’s past track record of growth and as well as
its future plans for growth from Step #2 - Step #6.

As I write, Axis REIT is trading at RM 1.23 a share. So, is this a good time to
buy / hold / sell shares of Axis REIT?

Step #7:  
What’s my Dividend Yields?  

Here, I’ll compiled the financial results of Axis REIT over the last 4 quarters:

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Figures in RM ‘000 unless stated otherwise
Gross Income DPU
Period Revenue Distributed (Sen)

Q1 2017 43,712 22,802 2.15

Q2 2017 42,664 23,543 2.17

Q3 2017 43,062 22,005 2.00

Q4 2017 43,277 22,446 1.94

Total 172,715 90,796 8.26

Here, I’ll provide two different calculations:

1. Based on 8.26 sen a year:

After deducting 10% withholding tax, I would expect a net dividend
of 7.43 sen. Thus, at stock price of RM 1.23, its gross dividend yields
is expected to be 6.04% a year.

2. Based on 1.94 sen of Q4 2017:

However, Axis REIT has reported a decline in DPU over the last two
quarters. Thus, if Axis REIT is able to maintain its gross DPU at 1.94
sen per quarter over the next 12 months, it would report as much as
7.76 sen in 2018. After deducting 10% withholding tax, the amount of
net dividend expected is 6.98 sen. Thus, at stock price of RM 1.23, its
gross dividend yields is expected to be 5.68% a year.

Step #8:  
Check Price-to-NAV Ratio  

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As at 31 December 2017, Axis REIT has net assets a share of RM 1.291. Thus,
at stock price of RM 1.23, its P/NAV Ratio works out to be 0.95, the lowest in
the 5-year period.

Year 2014 2015 2016 2017 22/3/2018

P/NAV 1.49 1.68 1.28 1.16 0.95

Step #9:  
SMA-Crossover Method 

Source: BursaMarketPlace

Blue Line: Actual Stock Price

Green Line: SMA-40 (Tracks Short-Term Stock Price)
Black Line: SMA-100 (Tracks Long-Term Stock Price)

At Point A, there is a crossover. The Green Line has moved above the Black
Line. Also, I’ve learnt that all 3 lines: Blue, Black & Green Lines have sloped
downwards. Since Point A, Axis REIT has moved on a downtrend.

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Snapshot:  
As at 22 March 2018, we have the following:

Step Criteria Results

Past Growth

1 Present Maintained

Future Step #5 - Step #6

P/NAV Ratio 0.95

2 Gross Dividend Yields 5.68% - 6.04%

SMA-Crossover Method Downtrend

Regards 
Ian Tai 
Creator of Bursaking.com.my

Disclaimer: 
The strategies outlined in this article / report / written material is intended
for education & illustration purposes. It is strictly not intended to be an
investment advice & must not be relied upon as personal financial advice. If
you need specific investment advices, please consult the relevant
professional investment advices.

No warranty is made with respect to the accuracy, adequacy, reliability,

suitability, applicability, or completeness of the information contained.
The author disclaims any reward or responsibility for any gains or losses
arising from direct and indirect use & application of any contents of the
article / report / written material.

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