Results

• Proposes private placement. Axis REIT announced that it will be undertaking a placement of up to 295m new units, representing c.20% of its existing share base (ex. treasury shares).

• Utilisation of proceeds . Based on its assumed indicative issue price of RM1.58 (4% discount to the 5-day VWAMP up to and including 22 May 2017 closing price of RM1.65), the placement will raise RM465.4m. This will be utilised for repayment of borrowings (RM458.4m) and placement related expenses (RM7.0m).

Highlights

• Rationale . The placement will enable Axis-REIT to raise funds to be used to repay its bank financing and provide Axis-REIT with sufficient headroom to make future cash acquisitions of new properties which is in line with its capital management and growth strategy

• Impact to net gearing . Based on our estimates, the placement is expected to reduce Axis REIT’s net gearing from 34% (1QFY17) to 13% on a proforma basis.

• Opinion . We are positive towards the placement exercise as this will reduce Axis REIT net gearing significantly (from 34% to 13%) while not being overly dilutive to the unitholders (estimated at about 5%). Besides, this will also allow Axis REIT to acquire more assets to enlarge its portfolio size which in turn allows management to enjoy greater operating efficiency arising from economies of scale.

Risks

• High concentration on logistic warehouse, office / industrial and manufacturing facilities.

• Slower rental reversion as compared to other M-REITs.

Forecasts

• We leave our forecast unchanged for now pending more clarity on the timeline for the completion of the placement exercise and take up.

• As an indication, assuming the placement is completed this year, the full year impact to both FY18 EPU and DPU would be about 5% net dilution as dilution from the new units will be partially offset by interest savings (RM19.3m)

Rating

HOLD ↔ , TP: RM1.71 ↔

• Maintain HOLD recommendation as we expect the benefits from the revision of REIT guidelines to only emerge over a longer-term horizon and rerating of this stock will be warranted once (i) improved take up rate on its vacant/low occupancy properties; and (ii) securing near-term NLA expiry.

Valuation

• Maintain HOLD with unchanged TP of RM1.71 based on unchanged targeted yield of 5.1%

Source: Hong Leong Investment Bank Research - 24 May 2017