Malaysian Axis Property Trust Weighs Bond Sale, Acquisitions

Taken from Bloomberg dated 31 March 2009…

Axis Real Estate Investment Trust, the world’s only Islamic office and industrial REIT, plans a bond sale in the first half of 2009 to help refinance debt as it prepares for potential acquisitions this year. 

“There’s nothing worse than having the sale of the century if you haven’t got any money to buy anything,” Stewart LaBrooy, chief executive officer of Axis REIT Managers Bhd., manager of the property trust, said in an interview in Kuala Lumpur yesterday. “There’s a lot of opportunities and fat pickings.” 

Axis REIT, which is eyeing 100 million ringgit ($27 million) of property assets, may sell Islamic bonds under a seven-year program to refinance about 220 million ringgit of debt, he said. It may also sell new stock to private investors. 

Axis REIT, based in Petaling Jaya, owns 726.4 million ringgit of assets in Malaysia, from offices and warehouses to logistic centers. It is taking advantage of a global recession to snap up properties at cheaper prices and ride on an eventual rebound when economies recover. 

The company was reclassified as an Islamic REIT from a conventional property trust in December, allowing it to attract a wider pool of funds, LaBrooy said. 

Axis REIT’s stock rose 1.5 percent to 1.33 ringgit at 11:37 a.m. local time, set for the biggest gain since Feb. 23. The benchmark Composite Index rose 0.3 percent. Axis has gained 19 percent this year, making it the second-best performing property trust in Malaysia, outpacing the index’s 0.4 percent decline. 

Axis REIT may raise about 70 million ringgit selling new units to private investors to help fund any acquisitions, LaBrooy said. It raised 90 million ringgit last year from a placement of 50 million units and will consider the fund-raising plan once it refinances its existing debt, he said. 

Still, it won’t be easy to acquire high-yielding properties amid the economic decline, said Terence Wong, an analyst at CIMB Investment Bank Bhd. 

“In order to buy yield-accretive assets, they would have to buy at a yield that’s higher than the dividend yield they pay right now, which is 13 percent,” he said. “It’s extremely difficult.” 

“Softening” rental rates will “exert pressure on Axis REIT’s ability in achieving higher rental and retaining its existing tenants,” RHB Research Institute Sdn. said in a report today. 

The property trust, which focuses on assets outside Kuala Lumpur, doesn’t expect rents to fall much as its rates are cheap and demand is still holding up, said LaBrooy. 

“We’re really on the lower end of the rental curve,” he said. “We’re getting inquiries from Kuala Lumpur players wanting to move out because its getting too expensive.”