Axis REIT purchase of building brings it closer to asset target

By The Star

PETALING JAYA: Axis REIT Managers Bhd's proposed acquisition of a five-storey building for RM37mil will boost its asset size to RM618mil, bringing it closer to its target size of RM800mil by year's end, Aseambankers Malaysia Bhd said.

In an announcement on Friday, Axis REIT proposed the buy of its 16th property, an office and factory in Petaling Jaya, from Wah Seong Industrial Holdings Sdn Bhd.

“The acquisition price appears fair at RM353 per sq ft with rising capital values,” said Aseambankers analyst C.T. Ong in a report. “The price compares well with recent office property transactions in the vicinity, like Nestle House at RM375 per sq ft and Menara Merais at RM358 per sq ft.”

The acquisition was expected to record a net property income of about RM2.6mil a year, or a net property yield of about 7%, he said, noting that it would increase Axis REIT's net profit by 3.3% for the financial year ending Dec 31, 2008.

The acquisition, expected to be completed by February next year, was anticipated to generate income of some RM960,000 a year for the trust, Ong said.

In March, Kompakar CRC Sdn Bhd, which occupied the five-storey building for the past nine years, agreed to renew its tenancy agreement for three more years, beginning Nov 23, for a monthly rental of RM270,000 (at RM2.55 per sq ft). It also has an option to renew for a further three years at a compounded rate of 4.4% per annum, according to Aseambankers.

Axis REIT's gearing is likely to hit 40%-43% by year's end owing to the acquisition of the leasehold property, with an approximate lettable area of 104,903 sq ft and an estimate gross rental value of RM3.2mil a year.

Aseambankers has maintained a “buy” call on the counter as it is expected to strike a target price of RM2.40, based on a discounted cashflow analysis, up 51 sen from its current price of RM1.89.