Axis-REIT profit likely to recover in second half

PETALING JAYA: Axis-Real Estate Investment Trust’s (Axis-REIT) earnings are expected to recover in the second half of 2026 (2H26) as leasing activity gathers pace, recently acquired industrial assets begin contributing and one-off cost pressures ease.

That said, research houses remain divided on whether its 1H26 results represented a temporary setback or a more meaningful earnings miss.

Analysts generally expect the industrial- focused REIT to benefit from improving occupancy at key properties and a healthy acquisition pipeline, with CIMB Research believing the investment manager’s 1H26 earnings likely represented the low point for the year.

“We view this positively, as it suggests 1H26 likely marked the earnings trough, with the recovery driven by operational improvements rather than one-off factors.”

Hong Leong Investment Bank (HLIB) Research was similarly optimistic, saying: “The 2H26 organic performance will be anchored by ongoing tenanting efforts, with management guiding key property occupancies to fully recover by January 2027.”

Axis-REIT reported second-quarter (2Q) core net profit of RM47mil, down 7.4% year-on-year, while 1H26 core earnings slipped 4% to RM96.8mil after lower rental income from temporary vacancies, suspended rental recognition at Wisma Kemajuan following a fire, and higher maintenance expenses. It declared a distribution per unit (DPU) of 2.3 sen for the 2Q, bringing 1H26 DPU to 4.8 sen.

The results drew mixed reactions from analysts, with CIMB Research judging the earnings to be below expectations after accounting for just 44% of its full-year forecast, and reducing earnings estimates for the financial years ending December 2026 to 2028 by 5.1% to 7.4% to reflect lower occupancy and rental reversions.

Nevertheless, the research house maintained a “buy” call with a reduced target price (TP) of RM2.15 on Axis-REIT, citing medium-term earnings support from acquisitions and developments.

In contrast, CGS International (CGSI) Research considered the performance broadly in line with expectations.

“We anticipate stronger earnings in 2H26, supported by improved portfolio performance and incremental contributions from newly acquired assets,” the research house said while reiterating its “add” recommendation as well as sharing CIMB Research’s RM2.15 TP for the counter.

HLIB Research took a more constructive stance, maintaining its “buy” recommendation while raising its TP to RM2.37 from RM2.16.

“We expect occupancies to fully recover by January 2027 and its four new acquisitions add approximately RM21.2mil in annual revenue,” it said.

A major drag on earnings was weaker portfolio occupancy, which declined to 93% in the 2Q from 97% a year earlier, largely due to the ongoing re-tenanting of Bukit Raja Distribution Centre and lease expiry at Axis Shah Alam Distribution Centre 3.

Rental income from Wisma Kemajuan also remained suspended, pending settlement of an insurance claim following the February fire.

Despite the short-term weakness, Axis-REIT expects occupancy to improve steadily over the coming quarters.

According to CIMB Research, occupancy at Bukit Raja Distribution Centre is expected to rise from 58% in the 2Q to about 91% by January 2027, while Axis Shah Alam Distribution Centre 3 is targeted to reach full occupancy by the same period.

“Occupancy recovery remains the key earnings catalyst,” the research house added.

Axis-REIT has also continued expanding its portfolio, and recently agreed to acquire a six-premises industrial complex in Padang Meha, Kedah, for RM113mil.

The fully occupied property comes with a six-year leaseback arrangement to the vendor, generating an initial gross yield of approximately 6.6%, which exceeds the REIT’s blended financing cost and is expected to be immediately earnings-accretive.

CGSI Research noted that the latest acquisition marks Axis-REIT’s third purchase this year, bringing year-to-date acquisitions to RM279mil.

Looking beyond the current year, CIMB Research is staying constructive on the industrial REIT sector, supported by resilient manufacturing activity, logistics demand, supply-chain diversification and continuing investment in data centres.

While near-term earnings remain affected by temporary vacancies and rental disruptions, research houses broadly agree that improving occupancy, positive rental reversions, ongoing developments and an active acquisition pipeline should underpin a stronger earnings trajectory into 2027, with dividend yields of around 5% continuing to support the investment case.

Meanwhile, an analyst with a foreign brokerage said Axis-REIT’s recent earnings weakness is cyclical rather than structural.

At the same time, she said the REIT continues to execute well on acquisitions, focusing on modern industrial and logistics assets with earnings-accretive yields, while Malaysia’s structural demand drivers – including data centres, electrical and electronics manufacturing, and supply-chain diversification – should continue to support industrial property demand.

“That said, we would not assume a straight-line recovery. Leasing risks remain, industrial supply is gradually increasing in certain corridors, and financing costs are likely to stay elevated relative to the ultra-low-rate environment of previous years, limiting the scope for aggressive DPU growth.

“Overall, we maintain a ‘buy’ recommendation with a TP of RM2.25, implying a modest premium to its historical valuation, supported by an expected dividend yield of around 5% to 5.5%,” she told StarBiz.