Johor facility disposal a good move for AXIS-REIT

JAYA: Axis Real Estate Investment Trust’s (AXIS-REIT) proposed disposal of an industrial facility in Johor for Rm162mil is a good move, according to analysts, given the attractive pricing.

In addition, the deal would likely enable it to redeploy its capital into better yielding assets or reduction in debts.

The trust fund announced on Tuesday that it had entered into a sale and purchase agreement with a data centre operator to sell Axis Steel Centre@silc in Nusajaya for Rm162mil cash.

The property has a net lettable area (NLA) of 688,000 sq ft, and its market value stood at Rm159mil as of Dec 26, 2023.

Upon completion of the disposal, expected to be by the second half of 2024, AXISREIT would likely make a net gain of RM500,000.

Maybank Investment Bank (Maybankib) Research said it was “positive” on the deal, as it would unlock the value of the property at about 2% above market valuation.

“The disposal proceeds can also be redeployed for yield-accretive investments or to pare down debt,” the research house said.

Based on its estimates, Maybankib Research said AXIS-REIT’S gross gearing would reduce to 0.33 times from 0.35 times as at end-march 2024, or 0.39 times post pending asset acquisitions, assuming that it fully utilised the proceeds to pare down its debt.

Maybankib Research maintained its “buy” call on AXIS-REIT with an unchanged target price (TP) of RM2.17 a unit.

Similarly positive on the proposed disposal of the facility, RHB Research kept its “buy” call on AXIS-REIT. But the brokerage lowered its TP for the counter to RM2.08 from RM2.11 previously, citing earnings revision because of the deal.

“Axis Steel Centre contributed Rm14.2mil in rental income in the financial year ended Dec 31, 2022.

“As we had initially forecast the building to be occupied in 2025, we have lowered our 2025 to 2026 earnings by 1.6% to account for the loss of rental contributions and potential savings on financing costs,” RHB Research explained.

After nine years of owning the asset, the upside to future rental reversions might be limited – considering the building’s current capacity as a manufacturing facility.

RHB Research said the sale price of RM138 per sq ft by land area and RM235 per sq ft by NLA under the deal was attractive for the disposal.

“It also allows AXIS-REIT to pare down its borrowings and partly fund its recent acquisitions in Bukit Raja,” it added.

RHB Research lowered its gearing estimate for AXIS-REIT to 36% from 39% (post ongoing acquisitions), noting this would provide room for the REIT to acquire other higher-yielding assets going forward.