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Axis REIT
(Dec 27, RM2.91)
Maintain buy at RM2.91 with a revised price target of RM3.61 (from RM3.73): Axis announced that its trustee, RHB Trustees Bhd, had on Dec 26, 2013 entered into a sale and purchase agreement with Collective Developers Sdn Bhd (an indirect subsidiary of Singapore Post) to dispose Axis Plaza in Shah Alam for a total cash consideration of RM34 million.
Axis Plaza is a five storey office/warehouse with a total net lettable area (NLA) of 117,000 sq ft. It was one of the first five properties acquired by Axis during its IPO in August 2005. The disposal has been anticipated, as management had guided its intention to sell one of its assets during a briefing for analysts in July. The disposal is expected to be completed by April 2014.
This is Axis REIT’s third disposal in Selangor, since the completion of its sale of Axis North Port in April 2011 and Kayangan Depot in December 2012.
At RM34 million, Axis Plaza’s disposal value is 6% higher than a recent valuation of RM32 million and 51% above its purchase price of RM22.5 million in August 2005. Axis REIT expects to recognise a net gain on disposal of RM11 million and intends to distribute the net capital gain to unitholders (approximately 2.35 sen per unit) in the second quarter of 2014, while the remaining proceeds will be used to pare down borrowings.
We are positive on the deal as Axis Plaza’s occupancy rate of around 89.3% has been lower than its portfolio’s average of around 95% since 2007. In addition, management feels that there is limited upside for future rental growth and the divestment will allow the group to redeploy the capital for more yield accretive properties.
Post-disposal, Axis REIT’s gearing will fall to 33%, which is slightly below management’s internal prudent limit of 35% and below the 50% gearing limit under the REIT guidelines.
We have tweaked our financial year 2013 ending Dec 31 (FY13) to FY15 realised net profit forecasts by -.9%, +0.7% and - 2.5% respectively after inputing the financial impact from the proposed disposal and pushing backward the completion timeline of new acquisitions in our forecast.
The REIT was relatively quiet on the acquisition front this year given the low cap rate environment. Nevertheless, we believe management is likely to acquire new properties in the first half of 2014 as Axis REIT had earlier indicated that a disposal will be timed together with an acquisition to ensure minimal impact to dividend per unit.
Apart from that, the proposed issuance of 90.8 million new units (19.7% of its existing fund size), which has already been approved by unitholders and Bursa Malaysia, to fund new acquisitions needs to be completed before April 3, 2014. Maintain “buy” with a lower target price of RM3.61 (from RM3.73), based on unchanged 7.7% cost of equity. We continue to like the REIT for its proactive management, both in enhancing its existing property portfolio and exploring new business opportunities. — Affin IB Research, Dec 27
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This article first appeared in The Edge Financial Daily, on December 30, 2013.
