KUALA LUMPUR: Axis Real Estate Investment Trust (Axis-REIT) has proposed to acquire and leaseback a 10.9ha freehold industrial facility in Kawasan Perindustrian SiLC, Nusajaya, Johor Baru, for RM153.5 million cash.

In a filing with Bursa Malaysia yesterday, Axis-REIT’s management company Axis REIT Managers Bhd (ARMB) said RHB Trustee Bhd, the trustee for Axis-REIT, signed a sale and purchase agreement on Oct 3 with Yongnam Engineering Sdn Bhd (Yongnam) to acquire the property.

Adding on to the three proposed acquisitions on Aug 4 of RM280.5 million, the fund’s total assets under management will go up to RM2 billion, with 34 properties under its portfolio from 30 properties currently.

The lease agreement with Yongnam, whose principal activity is fabrication engineering work, entails a fixed term of 15 years, with an option to renew for another 15. Rental rates for the fixed term would be at an agreed step-up rate of 10% every three years.

The property, about 25km west of Johor Bahru and 10km from Kota Iskandar, has a gross floor area of about 504,400 sq ft and had full occupancy as at Aug 15.

It is currently used as a steel fabrication facility by Yongnam, encumbered — but to be acquired free from encumbrances — with an initial net yield of 7.2% per annum before Islamic financing cost. Its net book value is RM62.8 million, based on Yongnam’s management accounts as at June 30 this year.

“We are extremely pleased with the acquisition of this high-yielding asset that will provide the fund with a stable income stream that will contribute positively towards its earnings. The purchase price of RM153.5 million for the property is below its market value of RM156 million, as appraised by CB Richard Ellis, an independent firm of registered valuers,” said Datuk Stewart LaBrooy, chief executive officer and executive director of ARMB.

LeBrooy said the proposed acquisition is consistent with Axis-REIT’s investment objectives and strategy and will be accretive to the fund’s distributable income.

The proposed acquisition and leaseback, which will be funded with new or existing bank borrowings, is expected to contribute positively to Axis-REIT’s earnings for the financial year ending Dec 31 this year.

“ARMB intends to utilise a debt facility of approximately RM153.5 million from Axis-REIT’s existing credit lines. The proposed debt financing will increase Axis-REIT’s gearing ratio to 38.58% of audited total assets as at Dec 31, 2013, which is below the gearing limit of 50% prescribed by the REIT Guidelines,” Axis-REIT said, adding that it hopes to complete the proposed acquisition and leaseback of the property on or before Dec 31 this year.

This article first appeared in The Edge Financial Daily, on October 8, 2014.