Axis REIT - Another disposal in the pipeline

News   Public tender for the proposed disposal of Kayangan Depot have been advertised in key newspapers (see below for details of the property). Currently, the market value of the property is RM22.1m vs. its cost of RM17.1m. If the public tender is successful, it will be the second asset disposal by AXREIT. 

The rationale of the exercise is to realise the value of the asset under AXREIT’s value enhancement efforts once the asset has reached its optimal value.   

Comments  We are not surprised by the announcement as we had anticipated it (refer to 16/2/12 report). The intention to dispose is very much within the company’s strategy of a property trading portfolio. AXREIT now has sufficient size and numbers of properties to trade them without significantly affecting its income, particularly if they are timed properly with new acquisitions.

 

The icing on the cake is that unitholders will be given special dividends from the gain on disposal, as seen with its first asset disposal last year, and thus offering investors potential excitements.

Assuming the asset is sold at the indicative market value of RM22.1m, the net gain could amount to RM4.8m, which will increase FY12E GDPU by 1sen to 19 sen (7.0% yield). Upon disposal, annualised FY12-13E core earnings will fall by < 3.0% each, although we believe this will likely be neutralised even as well by its aggressive acquisition pipeline. 

Outlook  There is the possibility of other disposals. We also expect FY12E to see acquisitions of up to RM300.0m.

Forecast  Maintaining FY12-13E RNI of RM81.3m-RM87.6m, implying GDPU of 17.9-19.3 sen (6.6%-7.1% yield). We will only factor in the disposal upon the actual sale announcement. New earnings drivers for FY12 onwards include Seberang Prai and Bayan Lepas industrial warehouses as well as the proposed acquisition of industrial properties @ Nilai.

Rating  MAINTAIN OUTPERFORM

Although AXREIT is only the 4^th largest M-REIT, we reckon its unique quality will allow AXREIT to continue its premium valuations of 1.3x Fwd PBV over its peers (between 1.1x-1.2x). Other M-REITs are unlikely to embark on such a strategy given their either too few or too lumpy assets portfolio size.

Valuation   No changes to our TP of RM2.82, based on GGM (8.2% required rate of return, 2.5% terminal growth, FY12E NDPU of 16.2 sen).

Risks  Office and industrial sector risks. Potential sector derating if investors switch to higher beta developers. 

Source: Kenanga