Axis REIT Managers Berhad (ARMB), the Manager of Malaysia’s largest Islamic Business Space and Industrial Real Estate Investment Trust, as well as Malaysia’s first REIT to be listed on Bursa Malaysia Securities Berhad; the Axis Real Estate Investment Trust (Axis-REIT) announced that RHB Trustees Berhad, the Trustee of Axis-REIT on behalf of Axis-REIT has on 1 November 2017, entered into a sub-lease agreement with Malaysia Airports Holdings Berhad (MAHB) to lease 7.02 acres of vacant land in Subang for RM19,876,428 for a lease tenure of 49 years expiring on 30 December 2066.
The Project Land is located within the proposed Malaysia International Aerospace Centre (MIAC) Technology Park, Sultan Abdul Aziz Shah Airport, Subang. It is situated at the western side of Jalan Masjid, Off Jalan Lapangan Terbang Subang, Section U3, Subang, Selangor. The Sultan Abdul Aziz Shah Airport is approximately three kilometres away from the Project Land.
The acquisition of the Project Land is part of Axis-REIT’s overall organic growth strategy to develop “build to suit” industrial facilities. The Project Land will be used for the development of a single storey manufacturing plant cum office building with a gross built up area of approximately 178,978.60 sq ft including ancillary buildings and external elements.
This manufacturing facility will serve the operations for Upeca Aerotech Sdn Bhd (“Upeca”) manufacturing plant and office for the manufacturing, storage and distribution of aerospace parts. Upeca is ultimately owned by Senior Plc, listed on the London Stock Exchange. The offer letter for the “built & lease” agreement has been accepted by Upeca on 6 September 2017.
The completion of the sub-lease of the Project Land is expected to be finalised by end of this year, and the development of the industrial manufacturing facility is expected to take approximately one year to complete and will be ready for handover to Upeca by 15 December 2018.
Upeca has committed to a lease of 20 years plus option to renew for a further two terms of six years each. Estimated initial net yield is at 7% per annum with a rental step up in the later years after year three onwards. Total development costs will be at RM74.16 million (including the Project Land).
“We are extremely pleased to embark on our second built-to-suit development for the Fund with a contracted long-term lease of 20 years at MIAC, Subang. Our skills to undertake ‘build-to-suit” development will enable the REIT to generate positive investment returns and create the pipeline of growth for the Fund,” said Leong Kit May, CEO/Executive Director of Axis REIT Managers Berhad.
Leong further said that the development will increase the Fund’s gross revenue, net property income and income distribution to its unitholders whilst enlarging the size of its assets under management. This development will represent 3% of the total asset under management of the Fund.
The Trust will be submitting a waiver to the Securities Commission to undertake property development activities, like the waiver obtained for its first build-to-suit development of the Nestle Distribution Centre at Axis PDI. The development of Nestle Distribution Centre is on track and will be handed over to Nestle Products Sdn Bhd by end January 2018.
The development will not have any immediate effect on Axis-REIT’s earnings per Unit given that the total development cost of RM74.16 million (including the Project Land) will be fully capitalised.
The gearing ratio of Axis-REIT after the Proposed Development is expected to increase from 34.78% (as at 31 December 2016) to 36.87% which will be below the permissible threshold of 50%.