AXIS REIT - MARKET PERFORM - 15 JUNE 2012

News   Axis REIT (AXREIT) has proposed 1) the acquisition of 91% of Wisma Academy and a neighbouring Annex with net yields of 8.5% and 6.7% respectively, for RM85m in total (market value: RM88m); 2) a proposed placement of 90.8m new units (20% of its existing unit size); 3) management fees payable for the issuance of up to 2.0m new units and 4) a renewal to issue up to 87.5m new units arising from IDRP. The acquisitions are inter-conditional and are conditional upon (2). The expected completion is 4Q12. (Details overleaf). 

  

Comments   The acquisitions are part of our estimated RM300m worth of acquisitions for the year and will boost the portfolio size by 6% to RM1.5b. Acquisition net yields are below AXREIT’s portfolio net yield of 9.2%. The new placements of 90.8m units will increase the unit base by 20% to 544.6m and will be NAV accretive assuming an illustrative placement price of RM2.64. Inclusive of the properties bought/proposed this year and placements, we expect the gearing to reduce to 0.19x from 1Q12’s 0.29x. 

 We are overall neutral on the above due to a combination of slight dilutions and a larger asset base. The acquisitions are not yield accretive, but it only makes up an annualised 5% of NPI. In addition,the placements will help pare down debt and hence, the finance cost. Nonetheless, we expect FY12-13E GDPU to be diluted by 1%-8%. 

  

Outlook  Upon completing the proposals and with a gearing of 0.20x, the group can borrow another RM246m, assuming a comfort gearing level of 0.35x. However,we only expect another RM100m worth of assets for FY12. AXREIT is also looking to dispose Kayangan Depot and will distribute disposal gains. 

  

Forecast  Raising our FY12-13E net incomes by 4%-10% to RM84.3m-RM96.4m, implying GDPU of 17.6sen*-17.7sen (6.3%-6.3% yield). (Refer overleaf). 

  

Rating Downgrading to MARKET PERFORM from

OUTPERFORM

 Although we continue to like AXREIT for its aggressive but yet nimble growth strategies, the recent share price run-up offers limited total return of 7%. Our TP also implies a peak valuation of 1.3x FY12E PBV post placement. We will upgrade upon more accretions arising from new acquisitions. 

   

Valuation   Lowering Target Price to RM2.80 (from RM2.82) on GGM (unchanged 8.2% required return and 2.5% terminal growth) on lower 15.9sen FY12E NDPU. 

Risks  Office and industrial sector risks. Increasing yield dilutive acquisitions. Sector de-rating if investors switch to higher beta developers.

Source: Kenanga