Axis REIT marching to the beat of its own drum

Axis REIT (Oct 24, RM2.52)
Maintain buy with lowered target price of RM2.75 from RM2.90:
Visible near-term growth with Axis REIT's recent proposed acquisition of a logistics warehouse in Seberang Prai, which will boost revenue by RM6.9 million in FY12F (assuming completion in FY11).

The REIT has another five acquisitions valued at RM225.5 million that are being assessed (expected completion 2012) with estimated yields of 8% (based on Axis' yield hurdle), tenures of more than five years and triple net leases ensuring relatively low property expenses.

Further enhancements to existing assets should bolster revenue growth via increased net lettable area (Menara Axis: 6,700 sq ft; Crystal Plaza: 15,000 sq ft) and higher revaluation gains (refurbishment of Infinite Centre, Wisma Bintang and Kayangan Depot).

Axis REIT will likely fund asset acquisitions via the announced 75.2 million-unit placement (which could raise about  RM170 million) and income redistribution exercise (to commence with 3Q11 distributions).

At 38.2% gearing (based on total asset value) as at Sept 30, we believe it may issue RM300 million of long-term sukuk bonds to refinance short-term revolving credit (RM340.1 million as at Sept 30; RM198 million due in 2011) to lengthen loan expiry profiles and lock in lower interest rates.

We have raised our FY12F/FY13F earnings by 18.3%/25.7% on higher assumed asset acquisitions. We maintain our "buy" call, but reduce target price by 15 sen to RM2.75 from RM2.90 as we roll over our valuation base to FY12F and update our discounted cash flow assumptions (7.2% weighted average cost of capital, 0.45 Beta, 2.5% terminal growth). — Hwang DBS Vickers Research, Oct 24

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