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Analysts: Axis REIT fund increment a positive move

KUCHING: Axis Real Estate Investment Trust’s (Axis REIT) proposal to procure a general mandate from its unitholders to issue up to 75 million new units as well as a recurrent and optional income distribution reinvestment plan (DRIP) was seen by analysts as a positive step forward for the group.

According to a research report yesterday from ECM Libra Capital Sdn Bhd (ECM Libra), investors should not be concerned about earnings dilution as Axis REIT has demonstrated in the past that any equity fund raising would coincide with yield-accretive acquisitions.

“As such, we are positive of the development as we expect more acquisitions in the pipeline. Under the DRIP, the reinvested amount will be retained to mainly fund refurbishment and/or renovation of properties held by Axis REIT which is expected to enhance future income generated by the properties,” ECM Libra said.

The implementation of both proposals was expected to be completed by the first half of 2011.

“At RM2.40 per unit, the placement mandate which represented 20 per cent of its current fund size, will raise about RM180 million gross cash proceeds which will pare down Axis REIT’s existing borrowings,” the research house added.

ECM Libra further revealed that the group’s debt/assets ratio of 34.5 per cent as of Dec 31, 2010 was close to management’s comfort level of 35 per cent.

With the placement, the debt level would be brought down to the 20 per cent level, thus allowing Axis REIT further financial capacity to acquire more assets in the coming year.

On the same page, the research team at Kenanga Investment Bank Bhd (Kenanga Research) believed that it was an opportune time for placements as the group was trading at 1.1 times of the price-to-book value of its financial year 2011 estimates.

This was on the back of the group having acquisitions in the pipeline from its private equity group as well as RM365 million potential new assets from third parties, added Kenanga Research.

ECM Libra believed that both proposals were also expected to improve the group’s net asset value per unit.

“The quantum of the impact will depend on the size of the electable portion, total number of units held by unitholders who elect to reinvest, and the issue price to be determined by Axis REIT’s board of directors,” it noted. Overall, Kenanga Research and ECM Libra sustained a target price of RM2.39 per share and RM2.90 per share respectively for Axis REIT.

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