Axis REIT makes third acquisition for the year

Axis REIT
(April 13, RM2.75)

Maintain outperform with a target price of RM2.82: Axis REIT has proposed to acquire two leasehold industrial buildings with a combined built-up area of 192,677 sq ft from LRS Property Sdn Bhd for a total cash consideration of RM26.5 million.

The buildings are located in Kawasan Perindustrian Nilai 1, Negri Sembilan. Both buildings are single tenanted with 100% occupancy each.

We are positive on the acquisition as it is net accretive given that the projected net property income (NPI) yield is similar to the asset portfolio yield of 9.2%. We are not surprised by the acquisition as it is part of the company’s acquisition pipeline.

We expect FY12 gearing to increase by 1.5 percentage points to 31.5% assuming 100% debt financing and post financing of Bayan Lepas and Seberang Prai warehouses.

Assuming a comfortable gearing level of 35%, the group can borrow another RM51 million. We expect the group to acquire up to RM300 million worth of properties in FY12, assuming placement of 90.8 million new units (RM221 million in new funds) and gearing of slightly less than 0.35 times.

We foresee marginal impact on FY12 realised net income (RNI) of RM81.3 million by virtue of the timing of contributions starting from July 1. We see more impact in in FY13 as we revise up RNI by 2% to RM87.6 million on full-year contributions. We estimate FY12 and FY13 gross dividend per share of 18 sen to 19.4 sen (6.6% to 7.2% yield).

Even at its premium valuation level at a FY12 price-to-book ratio of 1.29 times now, we reckon the stock will continue to re-rate itself because of its unique value proposition which other Malaysian REITs may not be able to offer for now. — Kenanga Research, April 13