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Axis REIT
(Oct 22, RM3.44)
Maintain hold at RM3.40 with a target price of RM3.70: Axis REIT’s realised net income (excluding RM15 million in revaluation gains) for third quarter of 2013 financial year ending Dec 31 (3QFY13) grew 11% year-on-year (y-o-y) (+1% quarter-on-quarter [q-o-q]) to RM21.4 million on the back of higher revenue and net property income (NPI) margin (+0.7 percentage point increase to 85.8%).
Turnover grew 7% y-o-y, underpinned by the addition of Wisma Academy & The Annex as well as about 8% rental reversion on existing properties. This was despite the complete closure of Axis Business Campus for major refurbishment works during the quarter.
Axis REIT’s gearing improved to 33% versus 34.2% in 3QFY12 as a result of revaluation gains, while cost of debt fell 25 basis points to 4.35%. The revaluation surplus was primarily attributed to Menara Axis and Tesco Bukit Indah, accounting for 33% and 20% of total revaluation gains, respectively. Asset quality remained steadfast with overall occupancy rate at 95% and four years in weighted average lease expiry.
Near-term growth for Axis REIT is favourable, with 32% of portfolio net lettable area (NLA) expiring in 2014, while the refurbishment of Axis Business Campus is slated to be completed in October 2013 (we expect double digit rental yields versus mid-single digit yields before refurbishment).
Axis REIT is also in negotiations to acquire assets worth RM317 million. Wisma Academy & The Annex will be refurbished in late 2013 or early 2014, though this is likely to happen towards the latter period as refurbishment concepts are still being reviewed.
While Axis REIT has a lot going for it in terms of near-term growth drivers, we are cautious given the uncertainty over the potential economic slowdown which may affect industrial and office space. A majority of the REIT’s acquisition pipeline are also third-party-based, implying lower visibility in terms of inorganic growth drivers. However, its office assets are still under-rented relative to the market, which implies some upside to a challenging office sector favouring newer properties. — HwangDBS Vickers Research, Oct 22
This article first appeared in The Edge Financial Daily, on October 23, 2013.
