This article first appeared in The Edge Financial Daily on November 2, 2017 - November 8, 2017

KUALA LUMPUR: Axis Real Estate Investment Trust (REIT) is leasing a plot of land from Malaysia Airports Holdings Bhd (MAHB) to build an industrial manufacturing facility to be leased to an aerospace components manufacturer.

It announced in a Bursa Malaysia filing yesterday that its trustee, RHB Trustees Bhd, has inked a sublease agreement to lease the 7.02-acre (2.84ha) vacant land in Subang from MAHB for 49 years for RM19.88 million.

It will then build the manufacturing facility-cum-office building with a gross built-up area of 178,978.6 sq ft at a cost of RM74.16 million on the plot. It said aerospace components manufacturer Upeca Aerotech Sdn Bhd has agreed to take up the lease of the building for 20 years via a build and lease arrangement.

“The manager envisages that the agreement to build and lease will be entered into by Nov 10,” said Axis REIT, adding an announcement will be made upon execution of the agreement. Upeca, which is an indirect wholly-owned unit of London-listed Senior plc, will get an option to renew its lease for two terms of six years each.

In a separate statement, Axis REIT said the plans are in line with its organic growth plan to develop “build-to-suit” industrial facilities. It said the lease’s estimated initial net yield is 7% per year, with a rental step up in the later years after year three.

Axis REIT Managers Bhd’s chief executive officer, Leong Kit May, said the development will increase the REIT’s gross revenue, net property income and income distribution to its unitholders as the development represents 3% of the REIT’s total asset under management.

Axis REIT expects the facility to be completed and ready for handover by Dec 15, 2018.

The project is not expected to have any immediate effect on its earnings per unit, given that the total development cost of RM74.16 million will be fully capitalised. Its gearing ratio, however, should rise from 34.78% to 36.87%.

The REIT will be submitting a waiver to the Securities Commission Malaysia to undertake the development, 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 REIT added.