Axis REIT plans to inject more properties

Company on an aggressive acquisition trail

AXIS REIT Managers Bhd, which manages AXIS Real Estate Investment Trust (Axis REIT), plans to inject a slew of properties from private equity and third-party transaction into the REIT in the next 12 months.

As of Dec 4, Axis REIT's total asset value under management was RM560.8mil based on 14 properties in its books.

There is also a good possibility that two more properties would be injected into the trust by this month or early next year, collectively worth RM65.48mil, bringing the portfolio to RM626.31mil in total.

Axis REIT Managers chief operating officer and executive director Stewart LaBrooy said the time was right to add more properties into the REIT, especially from private equity.

Stewart LaBrooy

Axis REIT is on an aggressive acquisition trail to grow its property trust to RM1bil by end-2008.

Axis REIT, which focuses on having a stable of properties for industrial use, showrooms and warehouses, was listed on the main board of Bursa Malaysia on August 2005.

Five properties – all from private equity – worth a total of RM300mil, was injected into Axis REIT in the listing.

Since then, another nine properties all from third-party transactions have been placed into the trust bringing the total number of properties in the REIT to 14 as of November.

Most of the properties in the REIT are located in Petaling Jaya and Shah Alam, except for one in Senai, Johor and another in Sungai Petani, Kedah.

LaBrooy said in third-party transactions, properties needed to be identified as suitable first before they were injected into the REIT.

“We then acquire them if they are available for sale provided they meet our requirements in terms of potential yield, capital gains and asset enhancement opportunities,” he told StarBiz.

LaBrooy said the situation now was quite different.

“We have the option to buy properties from third-party, private equity or both,” he said, adding that there were seven properties from private equity, which could be regarded as the second portfolio of properties from private equity to be considered for injection into Axis REIT.

“That's provided these properties meet the stringent requirements set by Axis REIT Managers, Securities Commission and the various regulatory boards,” he said.

He also said the seven properties or feedstock were specifically purchased earlier and carefully nurtured via asset enhancement activities to be later injected into the REIT when they were ready.

The seven properties alone – believed to be worth over RM200mil – if injected into Axis REIT, would raise the trust to at least RM826mil by end-2008.

That is assuming no third-party transacted properties are injected into the REIT as well for the whole of next year.

On the difference between acquisitions of properties from private equity versus third-party transactions, LaBrooy said it was likely that properties purchased under private equity by Axis REIT were generally acquired under more favourable conditions – in terms of price or yield.

Axis REIT Managers executive deputy chairman Datuk Carl Gunnar Myhre said: “I have higher aspirations to grow the REIT and I have my own targets for 2008.”

Datuk Carl Gunnar Myhre

Myhre said it was important that Axis REIT had a substantial number of assets under its portfolio as fast as possible to grow the REIT size to be noticed internationally, especially by institutional investors.

“As a REIT in Malaysia we are fairly known by local investors and most analysts but to attract institutional investors from abroad we need to grow much faster and bigger to take advantage of the growing industry, especially in the region,” he said.

Myhre said some of the REITs in the developed countries such as the United States and parts of Europe, Australia and even Singapore ran into billions.

“Besides the quality of properties injected into the trust to provide the required yield, size is also important, especially in fund raising,” he said.

Axis REIT director Stephen Tew agrees with Myhre on the importance of growing the REIT quickly.

He said the REIT industry in Malaysia was growing strong and there were many foreign investors, especially from the Middle East, who were snapping up a lot of the premium properties, especially in the Klang Valley and the Iskandar Development Region in Johor.

Stephen Tew

“In terms of valuation Malaysian properties are still very reasonable, compared with other countries in the region,” said Tew.

He said Axis REIT wanted to raise funds to go on a faster acquisition trail to mop up properties that are identified by Axis REIT Managers as suitable for potential injection into the trust.

“While we might have been perceived to be quiet these few months in terms of acquisition, but in reality, we have been fairly aggressive in our acquisitions over the past two years,” he said.

Tew said one of the constraints faced by many REIT managers in expanding the trust was due to inadequate funds.

Axis REIT has plans to place out 50 million new Axis REIT units under private placement – its first security issue since listing and hopes to raise about RM87mil from the exercise.

Axis REIT chief financial officer Lim Yoon Peng said since the private placement has been given the nod by unit holders, the REIT's gearing is expected to be pared down to about 28%.

It will also have additional funds to acquire more real estate. “Otherwise, our gearing would be about 44%, even after the injection of the two properties which is pending approval,” said Lim

By The Star (by Danny Yap)