MIDF Research says it is “neutral” on the private placement as it is part of the capital management of Axis-REIT.
PETALING JAYA: The move by Axis Real Estate Investment Trust (Axis-REIT) to undertake the private placement of its shares is a timely one amid the current rising interest rate environment.
This, at the same time, would also help Axis-REIT make future asset acquisitions to boost its earnings going forward in the wake of the challenging business times.
MIDF Research said it is “neutral” on the private placement as it has been part of the capital management of Axis-REIT. Recall that the company completed its private placement on Dec 20, 2021 that raised gross proceeds of RM334.7mil for repayment of bank financing.
Axis-REIT’s total financing was RM1.5bil as of the third quarter ended Sept 30, 2022 (3Q22).
The research house, which is maintaining its “buy” call on the stock with a target price of RM2.16, said the private placement was timely due to the rising interest rate environment.
Currently, 51% of Axis-REIT’s financing is from floating rate borrowings.
“By repaying bank borrowings with proceeds from the placement, Axis-REIT has sufficient financial headroom to make future asset acquisitions,” MIDF Research added.
Axis-REIT’s financing ratio is expected to fall to 34% from 38% following the private placement.
The earnings impact is expected to be limited at around 2% for the financial year 2023 (FY23) as the private placement is expected to result in financing savings of about RM6.8mil per annum.
Meanwhile, MIDF Research anticipates a 3% to 4% dilution to earnings per unit following the private placement in FY23.
“We maintain our ‘buy’ call on Axis-REIT . We are positive on the earnings outlook for the stock, due to the positive rental reversion outlook for industrial assets and its active asset acquisitions,” MIDF Research noted.
Axis-REIT, in a filing with Bursa Malaysia, said it is proposing to undertake a placement of its shares to raise an estimated RM178mil for the repayment of bank financing.
The proposed placement entailed the issuance of up to 100 million placement units, representing up to 6.09% of the total number of Axis-REIT units issued.
The actual number and issue price of the placement units will be determined at a later stage. The placement is expected to be completed by 2Q23.
According to Hong Leong Investment Bank (HLIB) Research, the gross proceeds of RM178mil would reduce its net debt position to about RM1.3bil from RM1.4bil as of Sept 30, 2022, while its gearing ratio would decrease to 31% (from 36%).
“Assuming the deal is to be completed, our target price shall fall to RM1.96 based on the same valuation basis.
“The reduction in gearing ratio provides greater headroom for Axis-REIT to increase its leverage in a bid to undertake further acquisitions of earnings-accretive assets.
“We note that this development will pave the way for it to achieve its acquisition targets with a total estimated value of RM120mil in the coming quarters. On balance, we are neutral on this development,” HLIB Research added.
