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On Aggressive Acquisition Mode
THE BUZZ
Axis REIT will acquire a parcel of leasehold land, and industrial buildings (called ‘Axis PDI Centre’), in Kuala Langat, Selangor for RM85m. It will also purchase leasehold land with buildings on it in Petaling Jaya (called ‘Axis Technology Centre’) for RM49m. Axis REIT also plans to undertake a proposed placement of up to 68.8 m new units, representing about 22.4% of the existing units in circulation, at a price to be determined later (Bursa).
OUR TAKE
Raising equity. Based on its 1Q10 balance sheet and after incorporating the purchase completion of another property (i.e. a warehouse property known as ‘Port of Tanjung Pelepas D8’ in Johor), its gearing is expected to increase to 37%. If the trust is to take on any new borrowings to fund the acquisition of the above-mentioned two properties, Axis REIT’s gearing will far exceed management’s internal target of 35%. As such, Axis REIT will undertake a private placement of up to 68.8m new units and raise an estimated RM130m cash (based on an assumed placement price of RM1.89/unit), to pare down its borrowings before proceeding with the acquisition of the two new properties. Post acquisition, expected to
be completed in 4Q10, its gearing will be estimated at about 34%.
Slightly earnings dilutive; neutral on the deal. Axis PDI Centre and Axis Technology Centre are estimated to have a net yield of 9.5% and 8.1% respectively compared to the current estimated gross dividend yield of 8.2% (or 8.7% if based on the assumed placement price of RM1.89/unit). As such, based on our estimates, these properties are expected to result in a negligible earnings dilution of ?1.2% to its FY11 EPU. We are, therefore, pretty much neutral on the deal. We maintain our target price of RM1.93 with a Neutral call.
THE BUZZ
Axis REIT will acquire a parcel of leasehold land, and industrial buildings (called ‘Axis PDI Centre’), in Kuala Langat, Selangor for RM85m. It will also purchase leasehold land with buildings on it in Petaling Jaya (called ‘Axis Technology Centre’) for RM49m. Axis REIT also plans to undertake a proposed placement of up to 68.8 m new units, representing about 22.4% of the existing units in circulation, at a price to be determined later (Bursa).
OUR TAKE
Raising equity. Based on its 1Q10 balance sheet and after incorporating the purchase completion of another property (i.e. a warehouse property known as ‘Port of Tanjung Pelepas D8’ in Johor), its gearing is expected to increase to 37%. If the trust is to take on any new borrowings to fund the acquisition of the above-mentioned two properties, Axis REIT’s gearing will far exceed management’s internal target of 35%. As such, Axis REIT will undertake a private placement of up to 68.8m new units and raise an estimated RM130m cash (based on an assumed placement price of RM1.89/unit), to pare down its borrowings before proceeding with the acquisition of the two new properties. Post acquisition, expected to
be completed in 4Q10, its gearing will be estimated at about 34%.
Slightly earnings dilutive; neutral on the deal. Axis PDI Centre and Axis Technology Centre are estimated to have a net yield of 9.5% and 8.1% respectively compared to the current estimated gross dividend yield of 8.2% (or 8.7% if based on the assumed placement price of RM1.89/unit). As such, based on our estimates, these properties are expected to result in a negligible earnings dilution of ?1.2% to its FY11 EPU. We are, therefore, pretty much neutral on the deal. We maintain our target price of RM1.93 with a Neutral call.
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