Axis Real Estate Investment Trust
(Oct 8, RM3.64)
Downgrade from “buy” to “hold” with a 12-month target price (TP) of RM3.60: Axis Real Estate Investment Trust (REIT) announced that it had entered into an acquisition and leaseback agreement with Yongnam Engineering Sdn Bhd, a unit of Singapore-listed Yongnam Holdings Ltd, for the latter’s industrial steel production facility for RM153.5 million. The freehold facility is located in Kawasan Perindustrian SiLC, Nusajaya in Johor Baru, and has approximately 504,000 sq ft gross floor area. This is a sizeable agreement, at 9.7% of Axis REIT’s total asset value (latest report).

The agreement includes a 15-year fixed-rental lease term with 10% step up every three years, starting at RM969,313 per month for the first three years. The terms are favourable with an indicative 7.2% net property income (NPI) yield, which implies a 95% NPI margin. This asset could add 7.4% to our current financial year 2015 forecast NPI.

The purchase will be funded by borrowings. Gearing should remain manageable at 30% to 40%, especially with plans to place out about 84 million shares to raise RM280 million to support a stream of acquisitions. Both parties aim to wrap up the transaction by Dec 31, three months ahead of the agreed completion date of March 31, 2015.

Since our last report, Axis REIT’s share price has run up past our target price (TP). Although we will be reviewing our earnings estimates and TP in an update report soon, we believe positives are largely priced in. — AllianceDBS, Oct 8

This article first appeared in The Edge Financial Daily, on October 9, 2014.