AXREIT has proposed to issue up to 100m new units (or 6.1% of current base) at an issue price to be determined later. At an illustrative issue price of RM1.78 per unit, the gross proceeds work out to be RM178.0m. EPU impact is negligible; based on a theoretical financing cost saving of ~RM6.8m and an enlarged base of 1.74b units, our FY23F EPU would dip marginally from 10.5 sen to 10.2 sen. Maintain MARKET PERFORM and TP of RM1.89 (based on a target yield of 5.5%).
Implementing a fund-raising exercise. AXREIT has proposed to undertake a placement of up to 100m units (representing up to approximately 6.1% of the existing total number of units) at an issue price to be determined later (which will be based on a discount of not more than 10% to the volume weighted average market price for the 5 market days immediately prior to the price-fixing date). Assuming an illustrative issue price of RM1.78 per unit, the gross proceeds to be raised work out to be RM178.0m.
Rationale. The proposed placement is part of AXREIT’s ongoing capital management strategy. Recall that in December last year, it completed the placement of 188.0m new units, raising gross proceeds of RM334.7m which was predominantly utilised to repay bank financing. This time round too, the entire proceeds (less estimated expenses relating to the fund-raising exercise) will be used for part repayment of bank financing (totalling RM1.49b as of end-September 2022). Using an average effective profit rate of 3.86% p.a. on an illustrative net amount of RM175.9m as partial repayment, this is expected to translate to a gross financing cost saving of ~RM6.8m p.a. In addition, on a proforma basis, the financing ratio is expected to decline from 35.8% as of end September 2022 to 31.5% post-exercise, which will provide AXREIT with incremental financial headroom for future acquisitions of new properties and carry out development projects via bank financing.
Negligible EPU impact. Imputing the theoretical gross financing cost saving of RM6.8m into our FY23F net income and taking into consideration an enlarged base of 1.74b units, overall earnings impact is broadly neutral with our EPU projection dipping marginally from 10.5 sen to 10.2 sen post adjustment. We maintain our MARKET PERFORM call and TP of RM1.89 based on a target yield of 5.5% (which is derived from a 1.0% yield spread above our 10-year MGS assumption of 4.5%) on our FY23F GDPU. This is to reflect AXREIT’s diversified portfolio of industrial assets (spread across various asset types such as logistic warehouse, manufacturing facilities, business parks and hypermarkets), offering a steady income stream. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us.
Risks to our call include: (i) expansion / contraction in risk-free rate / bond yield, (ii) higher / lower-than-expected rental reversions, and (iii) higher / lower-than-expected occupancy rates.
Source: Kenanga Research - 15 Nov 2022
