As the world encountered continued disruptions and headwinds from the COVID-19 pandemic through 2021, Axis-REIT’s strong fundamentals delivered another year of resilience and growth.
On behalf of the Board of Directors of Axis-REIT, we are pleased to present the Fund’s Integrated Annual Report for the financial year ended 31 December 2021.
The impact of the extension of pandemic related movement controls was manageable for Axis-REIT, as the Fund’s industrial-centric portfolio and tenant profile were lessimpacted by movement control order (“MCO”) restrictions than consumer-facing businesses. In fact, the protracted pandemic reiterated the need for resilient and efficient supply chains, which augured well for warehousing and logistics properties. The prolonged MCO also prompted businesses to review their working arrangements, which resulted in companies making decisions to right-size their business space requirements and diversify their locations, benefitting smaller offices in satellite and secondary locations.
Against this backdrop, we were able to draw on our experience and successes of 2020, and focus on executing our strategic plans while managing the short-term operational challenges, with a view to achieve favourable long-term outcomes for all stakeholders.
We are pleased to report that the Fund turned in strong financial and operating metrics in FYE2021. Total revenue rose 6% to a record RM246.2 million, while realised net income rose 9% to RM136.2 million. Axis-REIT’s balance sheet strength paved the way for continued growth of our property portfolio, with the Fund adding over 900,000 sq. ft. of net lettable area (“NLA”) during the year, extending its leadership in the industrial space segment.
Despite the volatility in investor sentiment, the Fund successfully completed a Sukuk issuance as well as an equity private placement exercise. Collectively these exercises raised RM544.7 million for the Fund, building a war chest that puts us in a strong position to take advantage of near term development, acquisitive and enhancement opportunities. We attribute the success of these corporate exercises to investor confidence in the Fund - which reflects trust in the Fund’s solid fundamentals, sound long-term strategies and strong management and leadership.
Advanced our ESG agenda with the enactment of Governance as Axis-REIT’s 6th Strategic Pillar, the introduction of Human Rights & Labour Practices as a new sustainability matter and including Diversity & Inclusion as an enhanced matter.
Axis-REIT’s reputation, operational expertise and financial strength enable the Fund to capitalise on a broad range of opportunities in portfolio building efforts. These enable the Manager to leverage on the Fund’s strengths and considerable appetite to seek significant acquisitive and development targets to enhance its portfolio and extend its leadership in the industrial real estate space. This has been particularly useful in the current environment where the acceleration of e-commerce and the need for supply chain enhancements have driven interest and demand for warehouse and logistics industrial properties.
On the supply side, the pandemic has also prompted more businesses to adopt asset-light models, leading to increased divestments of real estate assets. This has presented listings of sizeable and attractive industrial properties on the market that would otherwise have remained privately-held.
Amid this backdrop, we are excited to have announced Axis-REIT's fourth development project, which will be carried out over the FYE2022 and FYE2023 periods. The RM130 million project involves the redevelopment of Axis-REIT’s recently acquired Bukit Raja Distribution Centre 2 into a 620,096 sq. ft. warehouse. Shopee Express Malaysia Sdn Bhd ("Shopee Express") has signed a 15-year lease on this upcoming development. The project is a milestone for the Fund, not only as our largest development to-date in terms of size, but also because it presents exposure to the fast-growing e-commerce sector with a leading regional e-commerce player. The project will also be our first development project involving significant reconstruction and refurbishment of an existing asset in our portfolio.
During the year, the Fund had also concluded 5 property acquisitions for a total consideration of RM223.2 million, bringing the portfolio to 58 properties. The 5 properties complement our existing industrial focussed portfolio, adding 908,678 sq. ft. of net lettable industrial space to our Johor and Klang Valley portfolios, raising our total space under management to 11.4 million sq. ft. as at 31 December 2021.
Our Asset Enhancement Initiatives (“AEIs”) enable us to preserve and enhance our properties through structural, mechanical and aesthetic upgrades and refurbishment. During 2021, we invested RM19.4 million in AEIs across our portfolio of existing assets and we are pleased to note that most of our AEIs incorporated sustainability elements such as the installation of energy and water efficient fittings to optimise cost savings and reduce the Manager’s environmental footprint.
Looking ahead, the Fund will continue to seek and pursue acquisitive and development opportunities, focusing on logistics and manufacturing facilities with long leases and strong covenants, well located warehousing that supports last-mile distribution, as well as offices, business parks and industrial properties with potential for future redevelopment and enhancement.
Axis-REIT has and continues to attract and retain a strong tenant profile. Our current tenant list comprises multi-national and large local companies. The Fund’s branding, strategic portfolio and ability to deliver comprehensive business space solutions and services also continues to drive renewals and draw new tenancies as well as high tenant satisfaction scores.
During FYE2021, Axis-REIT successfully secured renewed tenancies for 1.75 million sq. ft. of space. These efforts, along with new property acquisitions, raised the Fund’s portfolio occupancy to 96% and secured a 5.6% positive rental reversion across the portfolio.
Axis-REIT’s investment and operational performance is reflected in the Fund’s strong financial results for FYE2021. Revenue increased by 6% year-on-year ("yoy") to RM246.2 million, while realised net income rose by a stronger 9% yoy to RM136.2 million, driven by incremental income from newly-acquired properties in 2020 and 2021, improved occupancy rates, positive rental reversions and lower property operating costs.
The Fund declared a total Distribution per Unit ("DPU") of 9.49 sen for FYE2021, up 8.5% yoy. This translates to a competitive distribution yield of 4.9% based on the Fund’s closing Unit price as at 31 December 2021.
Axis-REIT’s balance sheet remains strong, with net assets at RM2.5 billion after the successful equity placement and Sukuk issuances in FYE2021. As at 31 December 2021, Axis-REIT’s financing ratio stood at 30.9%, comfortably below the statutory limits, allowing the Fund to capitalise on suitable acquisitive and development opportunities as and when they arise. Net Asset Value ("NAV") per Unit increased by 5% to RM1.55, and the Fund closed the year trading at a 25% premium to its NAV.
We believe the impact of the pandemic will continue to be a key risk factor at a macroeconomic level in the near term, and this will warrant continued monitoring. The Manager has always taken a comprehensive approach to identify and understand financial and non-financial risks and how they influence the Fund in the short, medium and long term. Towards this end, we periodically conduct materiality assessments to evaluate our risk priorities and ensure our risk framework is up-to-date and commensurate with the broader macroeconomic and operating environment.
Following the unprecedented events of the last two years, we conducted a new materiality assessment in FYE2021 to review our position and priorities amid the fluid landscape. The assessment concluded that Economic Performance remained our top priority, while Occupational Health & Safety recorded a notable increase in importance amid the ongoing pandemic. Cybersecurity & Data Protection was also flagged as a heightened risk matter amid the increasing application and dependence on technology in our day-to-day operations.
With ESG awareness on the rise, we have seen an accelerated push for companies and businesses to disclose and measure their environmental, social and governance impacts. For Axis-REIT, we have embraced the need to approach and assess our business and operations in a holistic and comprehensive manner, to ensure long term sustainability and value creation.
Towards this end, we continually review our business strategy and ensure we increasingly incorporate impactful ESG considerations with meaningful targets and milestones. These strategies and goals are mapped into our business and operating strategies to ensure they are aligned with our economic goals.
In FYE2021, we enacted Governance as Axis-REIT’s 6th Strategic Pillar, to uphold the rules, responsibilities and procedures of the Manager, and to safeguard our integrity, ethics and cybersecurity practices.
During the year, the Manager expanded its ESG matters with the addition of Human Rights & Labour Practices as a new sustainability matter, to protect the rights of our employees and ensure fair labour practices throughout our value chain. We also introduced Diversity & Inclusion as an enhanced matter to strengthen the foundation of our business and emphasise fair treatment and equal opportunities for every employee. We enhanced our Cybersecurity framework, establishing new information technology (“IT”) Guidelines to improve data integrity and confidentiality, and to ensure business continuity. We also formulated a Cyber Hygiene Checklist as prescribed by the SC.
On the ground, we continued to increase our emphasis on sustainability considerations across our operations. To complement our on-going energy and water efficiency initiatives that have been in place since 2019 and 2020 respectively, we implemented enhanced waste management efforts in 2021, tracking the volume of waste generated as a first step towards establishing waste reduction targets.
For our investment activities, we enhanced the sustainability assurance of our acquisition strategy by implementing an initial due diligence assessment scoring system in our asset acquisition process. We also raised the bar for our vendors by including assessments on compliance with our Supplier Code of Conduct and adoption of ESG/sustainability practices in our annual vendor evaluation process.
Through these enhancements, we refined our focus to not only direct our efforts to these issues but to better communicate our priorities to our stakeholders, and ensure commitment and application of ESG matters in our business strategies as well as across our value chain.
The world appears to be adapting to living with COVID-19 as the “new normal”, as higher vaccination rates have reduced the severity and fatality rates of the disease, and as medical treatments have improved patient outcomes.
We have entered 2022 on stronger fundamentals, with Malaysia’s GDP expected to build on the recovery of 2021 and stage stronger growth in the coming year. Official forecasts peg the country’s GDP growth at between 5.5% and 6.5%, driven by the reopening of economic sectors and a recovery in external demand. Malaysia’s economy also stands to benefit from a recovery in commodity prices, improved labour market conditions and the implementation of infrastructure projects with high multiplier effects.
There are still downside risks - in particular, associated with the unpredictable nature of the pandemic, as well as normalising global interest rates and decelerating growth in China - which could potentially weigh on a global recovery. Having said that, we are, on balance, optimistic in our outlook for the Fund in the coming year.
Our strategy will continue to focus on building resilience in our operations, financials and ESG matters. We will achieve this through:
Leaning on our strengths to capitalise on opportunities that will extend our leadership in the industrial space segment, including evaluating redevelopment opportunities in property developments and acquisitions;
Collaborating with our tenants to implement effective and impactful AEIs to meet their requirements and needs while maintaining capital discipline;
Ensuring an optimal and efficient capital structure, closely monitoring profit rate movements and maximising the efficiency of cash flows to ensure the Fund has sufficient headroom for operational and expansion activities; and
Advancing our ESG agenda across all our activities, including through our physical assets (by ensuring the environmental sustainability of our buildings and properties towards achieving Green Building Standards) and governance (by ensuring commitment to our ESG matters internally and across our value chain), and exploring the possibility of sustainable financing options.
On behalf of the Board, we would like to thank our employees for their continued efforts in adapting and persevering through these challenging times. Axis-REIT’s performance in the last 2 years is testament to the team’s commitment and dedication. We also wish to express our gratitude to our tenants, suppliers, real estate agents and community partners for the continued collaboration that has allowed us to attain mutually beneficial outcomes.
We are also appreciative for the recognition from industry and media partners for following awards in 2021:
The Edge Billion Ringgit Club 2021
Highest Growth in Profit After Tax over Three Years (REIT Category)
The Edge Billion Ringgit Club 2021
Highest Returns to Shareholders over Three Years (REIT Category)
The Asset ESG Corporate Awards 2021
MIRA Investor Relations Awards 2021
Best Company for IR (Mid Cap)
MIRA Investor Relations Awards 2021
Best IR Professional (Mid Cap) - Chan Tze Wee
PwC Malaysia Building Trust Awards 2021
Finalist (FBM Mid 70 Index)
Axis-REIT’s continued resilience and growth demonstrates the Manager’s ability to stay the course and deliver on the Fund’s mission and targets while effectively managing short-term disruptions. It reflects the Fund’s solid foundations and sound strategies, as well as the Manager’s ability to capitalise on these strengths to benefit all stakeholders.
We look forward to 2022 on better footing, which sets the stage for stronger growth in the years ahead, as we continue to build for the long-term and position the Fund for sustainable value creation.
YAM Tunku Dato’ Seri Shahabuddin Bin Tunku Besar Burhanuddin
Leong Kit May
Chief Executive Officer/Executive Director
16 February 2022