Axis REIT - Acquisition of DHL Warehouse

Axis REIT Bursa stock code 5106

axis-reit-data Acquisition of DHL logistic warehouse
Axis REIT proposes to acquire a 3-storey office building and a logistic warehouse complex  in Penang for RM48.5m cash via a sale and lease back arrangement. We are positive of this acquisition as it is yield accretive given its gross yield of 9.4% as compared to CY12 distribution yield of 8.0%. Maintain BUY as we continue to like Axis REIT’s resilient earnings from its diverse portfolio of properties and decent yield.

  Axis REIT proposes to acquire a 3-storey office building and a logistic warehouse complex in Daerah Barat Daya, Penang for RM48.5m cash via a sale and leaseback arrangement with DHL Properties (Malaysia) Sdn Bhd.
  The property has a gross built-up area of 231,940 sq ft and land area of 3.083 hectares. It fronts onto the south-eastern side of  Lintang Bayan Lepas 9, within Bayan Lepas Industrial Park, Penang and is strategically located within the Bayan
Lepas Industrial Park, Phase IV which lies off the western side of Lebuhraya Tun Dr. Lim Chong Yu at a radial distance of approximately  18km due south-west of the George Town City Centre and approximately 3km radius due east of the Bayan Lepas Town Centre.
  Under the sales and leaseback arrangement, the property will be leased to DHL for a fixed term of 5 years with an option to renew for another 5 years. The initial rent is set at RM379,529.35 per month which will be raised by 2% every year.
  The acquisition is expected to be completed by end 2011.

  Together with the recently announced acquisition of a logistic warehouse in Seberang Prai for RM59m, this acquisition will raise the total assets of Axis REIT from RM1,280.6m as of 3Q11 to RM1,388.1m while its portfolio of properties will be increased to 29.
  We are positive of this acquisition as it is yield accretive. Gross yield of this property is at 9.4% as compared to existing CY12 distribution yield of 8.0%.
  Axis REIT will fund this acquisition (as well as the Seberang Prai logistic warehouse) by debt. On a proforma basis, these acquisitions will raise its debt/total asset ratio from 38.2% as of 3Q11 to 43%, which is still within the threshold limit of 50%.
  We believe Axis REIT will undertake a private placement upon completion of these acquisitions to lower its gearing in order to facilitate more acquisitions going forward. Note that Axis REIT has a general mandate to undertake up to 20% private placement.

Impact on estimates
  We raise FY12 and FY13 estimates by 3.9% and 4.1% respectively.

Impact on valuation and recommendation
  Reiterate our BUY call. Axis REIT remains as our preferred play on investment properties in Malaysia as well as a preferred buy-and-hold investment vehicle under coverage.
  We raise our DDM derived target price from RM2.65 to RM2.76.
  Our target price implies a FY12 P/NAV of 1.4x and distribution yield of 7.3%.
  Key share price catalysts include (1) yield accretive acquisitions, (2) asset enhancement initiatives, and (3) positive rental reversion.

axis-reit-analysisabove (click to enlarge): Axis Key Financial Data

by ECM Libra