Axis REIT Asset Disposal Should Improve Balance Sheet

(Photo credit: REIT week)

Axis REIT announced that it has entered into a sale and purchase agreement with  a data centre operator on 24th April 2024 for the proposed disposal of  Axis Steel Centre@SiLC in Nusajaya, Johor for cash consideration of  RM162m.

The proposed disposal is expected to be completed in 2HFY24. 

Maximise return on asset

MIDF Research (MIDF), in its Corporate Updatenote today(Apr 25) said they are slight positive on the asset disposal  as the asset is currently untenanted.

Note that Axis Steel Centre@SiLC is  in Nusajaya, Johor with land area of 26.96 acres. The main buildings on  land are manufacturing facilities with 2 single-storey detached factories  and a double-storey office building. The asset was formerly tenanted by  Yongnam Engineering Sdn Bhd (YESB) which defaulted its rental  payments.

Meanwhile, the proposed disposal of Axis Steel Centre@SiLC  is expected to maximise return of Axis REIT on its asset as the asset does  not generate significant income to Axis REIT. The disposal price of  RM162m is higher than market value of the property of RM159m and Axis  REIT is expected to record net disposal gain of RM0.5m.

Marginally lower gearing

The proposed disposal should improve  balance sheet of Axis REIT as Axis REIT is on active asset acquisition.  Note that Axis REIT announced asset acquisitions in Bukit Raja on 22nd April 2024 with total purchase consideration of RM351.8m which will lift  gearing of Axis REIT to ~0.4x. With the latest asset disposal, gearing of  Axis REIT is expected to reduce marginally to 0.38x. 

Maintain BUY with an unchanged TP of RM2.00

The proposed  disposal of Axis Steel Centre@SiLC is not expected to impact earnings of  Axis REIT as the asset is currently untenanted.

Hence, MIDF maintains their earnings forecast for FY24F/25F/26F. MIDF also maintains their TP for Axis  REIT at RM2.00, based on Dividend Discount Model (DDM).

They remain  positive on Axis REIT due to its exposure to industrial asset. Its active  asset acquisition with acquisition targets of RM200m should underpin its  earnings outlook going forward.

Hence, MIDF maintains their BUY call on Axis  REIT. Meanwhile, distribution yield is estimated at 4.2%.

In a recent filing with Bursa Malaysia, Axis Real Estate Investment Trust (Axis-REIT) is disposing of its property in Nusajaya, Johor, for RM162 million cash to a data centre operator. Axis-REIT said it could not disclose the purchaser’s identity due to confidentiality clauses in the sale and purchase agreement.

“Axis-REIT will provide the details of the purchaser upon the completion of the proposed disposal which is anticipated to be finalised by the second half of 2024,” it said.

The industrial property, which covers an area of 10.91 hectares, is to be disposed of free from encumbrances but subject to the terms and conditions stipulated in the agreement entered into between RHB Trustees Bhd, as the trustee for Axis-REIT, and the purchaser, the filing read.

Axis-REIT said the transaction aligns with the fund’s investment objectives, with the manager believing that over the nine years of owning the property, it has maximised its income-generating potential.

Moreover, there is limited potential for future rental growth in its current capacity as a manufacturing facility, it said.

“Given the favourable pricing of this asset sale and leveraging on the property’s best and highest use as a data centre development, this is an opportune time to dispose and redeploy capital towards potentially yield-accretive properties,” it said.

Axis-REIT also highlighted that the expected net gain from the proposed disposal will be approximately RM500,000 million and will not materially impact earnings for the financial year ending Dec 31, 2024.

“The net proceeds from the proposed disposal, after deducting all fees and related expenses, will be utilised to repay existing financings.

“These proceeds are expected to be utilised within 12 months from the completion date,” it said.

The proposed disposal is expected to reduce Axis-REIT’s financing ratio to 31.94 per cent of audited total assets as of Dec 31, 2023,” it added.

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