AXREIT (5106) - Axis REIT’s fundamentals unchanged
Axis Real Estate Investment Trust (Axis REIT) ( Financial Dashboard)
(March 4, RM3.56)
Maintain neutral call with an unchanged target price (TP) of RM3.50. We are neutral on the proposed unit split and income distribution reinvestment plan (IDRP) corporate exercises as we think they will not change the REIT’s fundamentals significantly.
We are also neutral on the 20% placement as the potential dilution on financial year ending Dec 31, 2015 (FY15) earnings per unit is estimated at only 5.8% — assuming 4% discount is applied to the latest five-day volume weighted average price.
The 4% discount is specified in its illustration of its Bursa announcement although the discount could go up to a maximum of 10%.
Moreover, while its share base will expand more by 20%, its FY15 net income may increase by 14% due to savings from lower interest cost. Debt-to-asset ratio is expected to decline to 14.2% from 32.3%.
Axis REIT announced three proposals yesterday: to split each of its existing units into two; place out 20% of its share base; and the IDRP. All three corporate exercises are not interdependent on each other.
Assuming the split and 20% placement were to go through, Axis REIT’s share base will increase by 140% to 1.31 billion shares (from the current 547.8 million shares).
The company expects the split to be completed in the second half of 2015 (2HFY15) and the 20% placement by end-2015.
As for the rationale, the split is aimed at increasing the liquidity and marketability of Axis REIT shares while the 20% placement is aimed at raising funds to repay existing debts in order to keep its debt-to-asset ratio at below 35%.
It must be noted that the 35% threshold is the management’s internal benchmark.
Pending the actual realisation of all the corporate exercises aforementioned, we maintain our earnings forecasts for FY15 and FY16 at this juncture.
Also unchanged is our TP which is based on dividend discount model (required rate of return: 7.9%, perpetual growth rate: 2%).
Despite the neutral news flow from these corporate exercises, the downside is supported by a decent FY15 dividend yield of 4.8%.
Do recall that Axis REIT’s RM45 million acquisition of a property in Shah Alam (Axis Shah Alam DC2) is expected to complete in 1QFY15.
The purchase of another industrial property in Prai, Penang for RM38 million is expected to be completed in FY15.
All these should increase the REIT’s asset under management to 35 properties with a combined value of around RM2.2 billion. — MIDF Research, March 4
This article first appeared in The Edge Financial Daily, on March 5, 2015.
Axis Real Estate Investment Trust (Axis REIT) ( Financial Dashboard)
(March 4, RM3.56)
Maintain neutral call with an unchanged target price (TP) of RM3.50. We are neutral on the proposed unit split and income distribution reinvestment plan (IDRP) corporate exercises as we think they will not change the REIT’s fundamentals significantly.
We are also neutral on the 20% placement as the potential dilution on financial year ending Dec 31, 2015 (FY15) earnings per unit is estimated at only 5.8% — assuming 4% discount is applied to the latest five-day volume weighted average price.
The 4% discount is specified in its illustration of its Bursa announcement although the discount could go up to a maximum of 10%.
Moreover, while its share base will expand more by 20%, its FY15 net income may increase by 14% due to savings from lower interest cost. Debt-to-asset ratio is expected to decline to 14.2% from 32.3%.
Axis REIT announced three proposals yesterday: to split each of its existing units into two; place out 20% of its share base; and the IDRP. All three corporate exercises are not interdependent on each other.
Assuming the split and 20% placement were to go through, Axis REIT’s share base will increase by 140% to 1.31 billion shares (from the current 547.8 million shares).
The company expects the split to be completed in the second half of 2015 (2HFY15) and the 20% placement by end-2015.
As for the rationale, the split is aimed at increasing the liquidity and marketability of Axis REIT shares while the 20% placement is aimed at raising funds to repay existing debts in order to keep its debt-to-asset ratio at below 35%.
It must be noted that the 35% threshold is the management’s internal benchmark.
Pending the actual realisation of all the corporate exercises aforementioned, we maintain our earnings forecasts for FY15 and FY16 at this juncture.
Also unchanged is our TP which is based on dividend discount model (required rate of return: 7.9%, perpetual growth rate: 2%).
Despite the neutral news flow from these corporate exercises, the downside is supported by a decent FY15 dividend yield of 4.8%.
Do recall that Axis REIT’s RM45 million acquisition of a property in Shah Alam (Axis Shah Alam DC2) is expected to complete in 1QFY15.
The purchase of another industrial property in Prai, Penang for RM38 million is expected to be completed in FY15.
All these should increase the REIT’s asset under management to 35 properties with a combined value of around RM2.2 billion. — MIDF Research, March 4
This article first appeared in The Edge Financial Daily, on March 5, 2015.
