This was largely due to an increase in the REIT’s one-off expenses.
Net property and investment income for the quarter came in at RM56.4 million, which is 3.9% lower year-on-year (y-o-y).
“(Its) Q1 2023 core earnings of RM32.4 million (lower by 11.9% quarter-on-quarter (q-o-q) and 16.3% y-o-y) were slightly below expectations, at only 19% of our and consensus full-year estimates,” said RHB Investment Bank in a note today.
Analysts Wan Muhammad Ammar Affan and Loong Kok Wen of RHB mentioned that property expenses rose 15.8% q-o-q due to one-off maintenance expenses.
Non-property expenses also increased 6.1% due to a RM3.5 million provision for doubtful debts by Yongnam Engineering, the lessee of Axis Steel Centre.
“As a result, the NPI (net property income) margin was compressed at just 84% (FY22: 87%). With a 64% fixed interest rate for financing (2022: 47%), we expect the effective profit rate ahead to be close to the 4.04% recorded in Q1 2023,” they said.
Nonetheless, research houses maintain a positive outlook on the REIT’s performance.
“We expect its performance to improve from a possible reversal of the provision, the lack of one-off expenses, as well as income contributions from new acquisitions,” said RHB.
Both RHB and MIDF Research maintained their earnings forecasts, despite the lower-than-expected Q1 2023 results, due to a stable earnings outlook for their industrial assets.
“Demand for industrial space remains solid and that supports a positive rental reversion outlook for industrial assets under Axis REIT’s portfolio,” said MIDF.
However, other houses such as Kenanga Investment Bank Bhd revised their core net income projections downward for FY2023 to RM162.7 million by 5.8%.
Expansion plans underway
Axis REIT has also announced the acceptance of a letter of offer to acquire a logistics warehouse for RM92 million in Kulim, Kedah.
This marks the REIT’s first foray into the state, as Selangor (46%) and Johor (38%) assets account for the majority of its footprint.
“The REIT also announced that it is acquiring its maiden industrial warehouse in Kulim for RM92 million, and has an acquisition target value of RM140 million. With its gearing level at only 33%, we are still positive on the REIT’s prospects,” said RHB.
Public Investment Bank Bhd noted that the group is still looking to expand its asset portfolio with a focus on Grade-A logistics facilities and manufacturing facilities with long leases from tenants with strong profiles and covenants.
Meanwhile, the redevelopment of Bukit Raja Distribution Centre 2 is around 80% complete, and is on track for lease commencement by Shopee Express Malaysia in September according to Axis REIT management.
At 11.15am, Axis REIT was flat at RM1.91, giving it a RM3.33 billion market capitalisation.