Axis  REIT  has proposed  a  2-for-1  unit  split in  an  effort  to improve its liquidity. Maintain NEUTRAL, with a revised DDM-based TP of MYR3.75 (6%  upside)  after  ascribing  a  liquidity  premium  from  this  exercise.Management  has  also  proposed  the  authority  to  allot  and  issue  newunits  of  up  to  20%  of  its  existing  fund  size  for  future  placement exercises, which we see as an indication of potential asset injections.

Proposes 2-for-1 unit split.  Axis REIT  (Axis)  has announced  a 2-for-1 unit split  for all its existing units. In addition, several other proposals were also made, which include: i) a proposal to allot and issue up to new units of up to 20%  of its existing fund size; and ii) the proposed renewal of its income distribution reinvestment plan (IDRP) that will provide unitholders with the  option to  reinvest  their  income  distribution  in  the  form  of  new Axis REIT units. The announcement has indicated that the issuance of new units will likely come from its future placement exercises.  If all the proposals  are  approved,  Axis  could  see  its  unit base  almost  double  to 1.47bn new units  from 547.8m units currently.  Management is hoping to complete  the  unit  split  sometime  in  2H15,  and  the  other  proposals  by year-end.

Unit  split  to  improve  liquidity.  We  are  generally  positive  on  these exercises. At present, Axis’ unit price of MYR3.55 is almost double  that of  most  of  its  peers.  As  such,  the  REIT  is  perceived  as  being  more “expensive”  compared  to  its  peers.  Hence,  the  unit  split  could  help  to boost Axis’ attractiveness to unitholders and thus improve on its liquidity.Although the  future  placement of new units might be seen as earningsdilutive  on its own, based on  its  previous track record, Axis’ placements exercises  are  typically  done  in  tandem  with  new  asset  acquisitions. Hence, earnings dilutions will likely be minimal.

Earnings forecasts. We maintain our numbers for now.

Maintain  NEUTRAL.  As  our  DDM-based  TP  is  revised  to  MYR3.75(from MYR3.55) after ascribing a liquidity premium  to  the REIT,  our cost of equity assumption  falls  to  6.9%  (from 7.1%).  Note that our  TP could be  lowered  further  to MYR1.42,  based on the enlarged unit base postexercises.  We  see  the  proposed  placement  of  new  units  as  a  positive indicator  of  more  yield-accretive  asset  injections  to  be  made  over  the near to medium term.

Source: RHB