MIDF Research has reiterated its BUY call on Axis REIT as it remains positive on earnings outlook for Axis REIT due to the positive rental reversion outlook for industrial assets and active asset acquisition of Axis REIT.
Axis REIT has proposed to undertake a private placement of up to 100 million units, representing up to approximately 6.09% of the total number of Axis REIT units issued. However, the actual number and issue price of the of placement units will be determined at a later stage. The proposed placement is expected to be completed by 2QFY23.
Private placement to repay borrowings. Axis REIT intends to use entire of the proceeds from private placement for repayment of bank financing. MIDF has stated in its research report that it is neutral on the private placement as private placement has been part of capital management of Axis REIT.
Recall that Axis REIT completed private placement in 20 December 2021 which raised gross proceeds of RM334.7m for repayment of bank financing. Note that total financing of Axis REIT stood at RM1.5b as of 3QFY22. By repaying bank borrowings via proceeds from placement, it allows Axis REIT to have sufficient financial headroom to make future asset acquisitions. The research house further elaborates that the private placement timely due to rising interest rate environment. Note that 51% of Axis REIT’s financing is floating rate borrowings.
Lower financing ratio. Financing ratio of Axis REIT is estimated to reduce to 34% from 38% post private placement. Note that financing ratio of 38% has factored in bank financing and total assets post recent acquisition of assets. Earnings impact is expected to be limited at around 2% for FY23 as the private placement is expected to result in financing saving of around RM6.8m per annum. Meanwhile, MIDF estimates dilution of around 3-4% to EPU for FY23 post private placement.
The research house has set an unchanged target price (TP) of RM2.16 (based on Dividend Discount Model) and maintains its BUY rating on this REIT. It makes no changes to its earnings forecast for FY22/23F pending completion of the private placement.
