PUBLIC Investment Bhd has maintained a neutral call on Axis Real Estate Investment Trust’s (Axis-REIT) purchase of an asset worth RM37 mil as it expects minimal impact on the REIT’s earnings given its total assets which are worth about RM3 bil.
“We maintain a neutral call and DDM (dividend discount model)-derived target price (TP) of RM1.77. Key catalyst is the Phase 2 of Axis Mega Distribution Center,” it says.
Axis-REIT has entered into a sale and purchase agreement to acquire a property in the Bukit Raja Industrial Area from Lion Steelworks Sdn Bhd for RM37 mil.
The Bukit Raja Industrial Area in Klang is an established industrial zone which is easily accessible via major highways.
The property, located close to Shah Alam, comprises a leasehold plot of industrial land measuring 22,528 sq m, with two blocks of detached factory and a double-storey office building annexe plus other ancillary structures. The gross floor area/net lettable area is 149,605 sq ft. The land’s 99-year lease will only expire in 2088.
The property is fully occupied where the factory is being used by Lion Steelworks to manufacture and distribute office equipment, security equipment and steel-related products. Upon the completion of the acquisition, the property will be leased by Lion Steelworks.
The tenancy is for a fixed period of two years and five months from the tenancy agreement’s commencement date with an option to renew for another two terms of one year each. Upon commencement of the tenancy, Lion Steelworks will pay the rental for the first 24 months of the initial term amounting to RM5.4 mil (RM225,000 per month) to Axis-REIT.
The acquisition will be funded via Axis-REIT’s existing bank financing. The proposed debt financing will increase Axis-REIT’s gearing ratio to 38.1% of the audited total assets as at Dec 31, 2018 which is below the gearing limit of 50%, as prescribed by the Guidelines on Listed Real Estate Investment Trusts issued by the Securities Commission Malaysia.
The proposed acquisition is expected to contribute positively to Axis-REIT’s earnings for the financial year ended Dec 31, 2020 as the acquisition is expected to be completed by the first quarter of 2020.
The property’s market value is RM39 mil, as appraised by PA International Property Consultants Sdn Bhd, an independent firm of registered valuers, in its valuation report dated Oct 28, 2019.
At noon on Dec 26, the company was traded at RM1.78 with 84,500 shares changing hands.
