Axis REIT has proposed to acquire 2 pieces of land for a total lump sum cash consideration of RM87m from TSSB. Upon completion in 2H18, the properties shall be leased back to TSSB for a fixed period of 6 years, with an agreeable monthly rental of RM528k for the first 3 years and RM581k for the following 3 years. We maintain forecast pending completion of the acquisition. We maintain HOLD with unchanged TP of RM1.33 based on unchanged targeted yield of 5.6%.

NEWSBREAK

Axis has proposed to acquire a 2 pieces of industrial freehold land with a combined area of approximately 440k sqft, erected upon with 4 warehouse blocks, a doublestorey-detached office building, a double-storey canteen building, 2 guardhouses and a car park at Section 28, Shah Alam.

Axis proposed to acquire the properties for a total lump sum cash consideration of RM87.0m from Teraju Sinar Sdn Bhd (TSSB). The proposed acquisition of the properties with net book value of RM92m and 100% occupancy rate as of 23 April 2018 is expected to be completed in 2H18.

The proposed acquisition will be funded by existing bank facility. Upon completion, the property with NLA of 254k sqft shall be leased back to TSSB for a fixed period of 6 years at an agreed monthly rental of RM528k per month for the first 3 years, and RM581k per month for the following 3 years.

HLIB’s VIEW

Positive on the news. We are positive on the news as the proposed acquisition is yield accretive given the net yield of 7.0% (before Islamic financing cost) vs its current yield of 5.4%. The property will be fully tenanted under long lease term under 3 years advance rental which further minimize the risk to Axis REIT. The acquisition price of works out to be RM197 psf, which is fair for freehold industrial space at Seksyen 28 Shah Alam. Notably, the acquisition price of RM87m is lower than the book value of the properties at RM92m.

Gearing. Axis intends to utilise debt facility of approximately RM87m from its existing credit lines. The proposed debt financing will increase Axis’s gearing ratio to 35.3% from 33.1% as end of FY17. With a gearing level of 35.3% which is below the gearing limit of 50%, we feel there are still room for more acquisitions.

Forecast. We maintain our forecast as we expect meaningful contribution will only kick in in FY19, pending completion of the acquisition.

Maintain HOLD recommendation with unchanged TP of RM1.33 based on based 2 years historical average yield spread of Axis REIT and 10-year MGS.

Source: Hong Leong Investment Bank Research - 23 Apr 2018