AXREIT: Industrial REIT Delivers Robust Earnings on Operational Strength

A leading industrial Real Estate Investment Trust (REIT) has reported impressive financial performance for FY25, with core earnings of MYR205m exceeding internal and consensus expectations by 101% and 100% respectively. This strong showing reaffirms the REIT’s position as a key player in the resilient industrial property sector. The distributable income per unit (DPU) for FY25 rose to 10.55 sen, up from 9.27 sen in FY24, indicating consistent income growth for shareholders.

Performance Review and Key Drivers

The REIT’s FY25 revenue climbed by 13.8% year-on-year to MYR364.2m, largely propelled by earnings contributions from MYR719m worth of acquisitions completed in FY24. Operational efficiencies were a significant factor, with the net margin strengthening to 56.3% (from 50.9% in FY24) and the net property income (NPI) margin remaining robust at 86.8% (from 86.4% in FY24). Furthermore, financing costs saw a reduction to MYR71.4m from MYR74.4m, contributing to the improved bottom line. The gearing level remains comfortable at 32.4%, providing ample headroom for future yield-accretive acquisitions.

Challenges and Future Outlook

Despite the strong performance, the REIT acknowledges challenges related to tenant uptake at newly acquired assets. Specifically, earnings upside for the immediate term will depend on the leasing progress at two currently vacant properties in Selangor. Management anticipates a phased occupancy for these assets. A potential downside risk identified by analysts includes delays in acquisition completion and slower-than-expected tenant absorption on new properties.

Looking ahead, the REIT expects to maintain a trajectory of steady earnings growth, supported by sustained tenant demand for industrial assets. Occupancy is projected to remain stable, with low- to mid-single-digit rental reversions anticipated for FY26. In the medium term, the proposed acquisition of a 135.5-acre freehold industrial site in Seberang Perai Tengah, Penang, with an estimated initial monthly rental of MYR4.16m, is expected to provide further upside from FY27 onwards, enhancing long-term income visibility.

Analyst’s Recommendation

The investment bank maintains its “BUY” recommendation, reiterating a target price of MYR2.42, which implies a 22.2% upside from the last traded price of MYR1.98. This valuation, which includes a 2% ESG premium, suggests an attractive FY26F yield of 4.3%. The outlook for industrial assets remains stable, offering a spread of 110 basis points over the 10-year Malaysian Government Bond yield, reinforcing the positive investment thesis.