Axis REIT has proposed to undertake placement of up to 247.5m new units (c.20% of its issued units). Assuming an issuance price of RM1.75 (4% discount to the WAMP), Axis REIT may raise up to RM433m in gross proceeds, to be used for the repayment of bank borrowings related to its recent acquisitions. To recap, Axis REIT has proposed to acquire six properties worth RM207m YTD 2019. Assuming Axis REIT matches the placement size to its capital outlay of RM207m, we estimate the exercise will lift Axis REIT’s 2020E EPU by up to c.2%. We maintain our earnings forecasts for now pending further updates. Reaffirm BUY call and TP of RM1.99. At 5.4% 2020E yield, Axis REIT offers a higher yield vis-à-vis the other big-cap MREITs, and so looks attractive.

Propose Placement of New Shares

Axis REIT has proposed to undertake placement of up to 247.5m new units, representing up to 20% of its issued units. For illustrative purposes, assuming the maximum number of placement units are issued at an issue price of RM1.75 per unit (4% discount to the 5-day weighted average market price (WAMP), Axis REIT may raise gross proceeds of RM433m, to be used for the repayment of bank facilities that were taken up to finance the acquisitions of properties.

To-date, Axis REIT Has Proposed to Buy 6 Properties Worth RM207m

Axis REIT has proposed to acquire (or has acquired) six properties worth RM207m in the year-to-date 2019 (Fig 1). These properties are leased to manufacturing / logistic clients with initial gross yields of between 6.7%- 10.0%. Elsewhere, Axis REIT has also signed Letters of Intent (LOI) for the acquisitions of another 3 properties worth RM152.8m.

We Are Neutral on the Proposals

We are not surprised by the proposed placements, in view of Axis REIT’s proactive acquisition plans and relatively high gearing (40.2% as at 3Q19). Broadly, we are neutral on the proposed exercises (placement of new shares and acquisitions). Assuming: (i) the placement size to match the capital outlay for its proposed RM207m acquisitions; (ii) the properties to deliver initial gross yield of 7.5% (net yield of 7.0%); and (iii) issuance price of RM1.75 per placement unit, we estimate these exercises to lift Axis REIT’s 2020E EPU (and DPU) by up to 2%.

Reaffirm BUY Call and DDM-derived TP of RM1.99

We maintain our earnings forecasts for now, pending further updates on the placement and acquisitions. We reiterate our BUY rating and DDM-derived 12-month target price of RM1.99. We continue to like Axis REIT for its industrial / warehouse asset portfolio and attractive 5.4% yield for 2020E. Key downside risks: lower-than-expected asset occupancy rates, further weakening of the office market, delay in securing tenant(s) for Axis Mega Distribution Centre 2, and an unexpected increase in the OPR / 10-year MGS yield.

Source: Affin Hwang Research - 30 Oct 2019