Axis REIT Asset Acquisition 2012

Axis REIT to acquire Wisma Academy and the Annex in Petaling Jaya. The former is bought at market value while the latter is acquired at 20% discount to market value.

In REIT Method course, Axis REIT is one of the M-REIT which possesses most of the traits of a good REIT to invest in.

1. Increasing DPU.

2. Management who is actively managing its assets portfolio without increasing management expense ratio.

3. AEI (Asset Enhancement Initiative) and AA (Asset Acquisition) in its assets – REIT cannot be stagnant

4. Diversified tenants and tenants’ business

5. Reasonable Weight Average Lease of Expiry

6. Gearing ratio below 40%

In REIT Method course, members get to learn how to scrutinize all these factors in detail.

Anyway for Axis REIT, the only reason one would really think twice buying it now is the fact the stock price is at its all time high.

This year, Axis REIT is “on the move” again. I’ve summarized its most recent AA here.

Axis REIT Wisma Academy Annex

The only red flag here, even for a layman perspective is the fact that the occupancy rate is below average – 77.2 percent for Wisma Academy. But here’s one unique thing that Axis REIT does:

Axis REIT will provide 3 year rental guarantee of the 22.8 percent vacant spaces at Wisma Academy.

On top of that, Axis REIT management plans  to conduct AEI on both assets.  Maybank Investment Research states that the rental rate psf at Wisma Academy is under market rate when compared to rental rate in the surrounding area.  So, with AEI in tow, it can potentially command higher rental rate on par with market rate although it is unknown why its rental rate is below market as of now.

Of course, as with any AA, the REIT gearing ratio will increase. For this case, it will shoot up to 38% but still way under the 50% cap by SC.

It does not end here because post-AA, Axis REIT would conduct another exercise of raising capital via private placement – which is used to again pare down its gearing ratio to below 30 percent.

The full contribution of these AA is yet to been seen until 2013. Maybank Investment Bank rating is HOLD if Axis REIT is already in your portfolio.

Disclosure: I have no positions in Axis REIT, and there is no intention to initiate a long position in Axis REIT over the next 72 hours.

Disclaimer: This is not an invitation to buy or sell. I do not guarantee the accuracy or validity of the information above. Do your own due diligence before investing and invest at your own risk.

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