Asset injections will lift Axis REIT’s earnings

Axis Real Estate Investment Trust
(Aug 5, RM3.46)
Maintain buy with target price of RM3.60:
Axis REIT’s net income for the second half ended June of financial year 2014 (2HFY14) was 48% of our FY14 estimate. Revenue was flat quarter-on-quarter (q-o-q) while net property income margin inched up by one percentage point q-o-q to 85% due to lower property expenses.

Axis REIT declared 5.3 sen distribution per unit (DPU) (ex-date Aug 14). The distribution includes the second tranche payment (0.8 sen) of gains from the disposal of Axis Plaza (RM10.95 million or 2.37 sen per unit). The third tranche (0.77 sen) will be distributed in 3QFY14.

Axis REIT has proposed to acquire three industrial buildings in Selangor for RM281 million. The buildings are currently 100% occupied and generate 7% annual net yield before financing cost. Axis REIT is also performing due diligence and finalising the terms for the acquisition of industrial facilities in Prai, Penang and Johor for a total consideration of RM192 million.

The potential asset injections will lift its earnings. Meanwhile, management is looking to lease out its Axis Business Campus in Petaling Jaya after the asset enhancement initiative.

We see little refinancing risk given its low financing cost (4.2%) and short-term debt to be pared down with an impending unit placement. The proposed placement (to raise up to RM275 million) is expected to be completed in 3QFY14. The recent 25-basis point hike in the overnight policy rate will have minimal impact on earnings because about 70% of its loans carry fixed rates.

Axis REIT offers an attractive 6% distribution yield, with a bumper offering of 2.37 sen per unit in FY14 (distribution of gains from the sale of Axis Plaza). — AllianceDBS Research, Aug 5

This article first appeared in The Edge Financial Daily, on August 6, 2014.


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