Axis REIT (Maybank IB Research) maintain buy; target price RM2.60

Results in line; embarks on aggressive acquisition plans

Maintain Buy. Axis REIT (AXRB)’s RM16.2m 3M11 realised net profit (+0.2% QoQ, +38% YoY) was within expectations. Its 4.2 sen DPU was also in line. We believe AXRB’s hands-on management and proven track record will remain the pull factor for the stock. It currently trades at 7.5% gross yield (versus 8.2% industry average). There is no change to our earnings forecasts and RM2.60 DCF-based target price.

Net profit up 38% YoY; 4.2 sen DPU declared. YoY growth in net profit was driven by: 1) full-year contributions from properties (SP Logistic Warehouses 1&2, Tesco Bukit Indah, Axis PDI Center and Axis Technology Center) acquired in 2010, 2) newly-acquired asset i.e. PTP D8 in Johor (Mar ’11), and 3) better occupancy rates and 3-10% rental hikes from existing assets (Menara Axis, Crystal Plaza, Infinite Centre and Wisma Kemajuan) except for Axis Business Park (-4.75% rental revision due to incentives given to a long lease agreement). AXRB has declared a 4.2 sen DPU (+13.5% YoY; 97% payout).

Continues aggressive acquisition plans. Post-Axis Eureka acquisition (Apr ’11) and disposal of Axis North Port Center (Apr’11), AXRB’s asset size stood at RM1.3b (+5.7% from 2010). AXRB targets to hit RM1.5b asset size by end-11. It has RM426m worth of properties in the pipeline (see Table 2). To retain its financial flexibility, it has proposed an up to 75.2m new unit placement (20% of existing 375.9m units) in Feb ’11. We estimate c.17% EPS dilution but the impact could be lower as AXRB normally multiplies its yield accretive acquisitions and placements. Assuming RM177m placement proceeds (RM2.36 issue price), gearing would improve to 0.24x from 0.36x as at Mar ’11.

Unitholders have the choice. AXRB has received the nod from SC for its proposed Income Distribution Reinvestment Plan (IDRP). We are positive on the IDRP as it provides unitholders with greater flexibility in achieving their investment objectives by electing their income distribution (electable portion), either in cash, new units or cash and new units. Moreover, unitholders can now reinvest their income distribution in new units at a discount (not more than 10%). However, the dilution impact arising from the IDRP is hard to quantify for now as it is subject to the electable portion set by AXRB management, issue price and the number of units elected by existing unitholders.


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