Axis REIT - 9M12 within

Period   3Q12 / 9M12 

Actual vs.  Expectations    9M12 realized net income (RNI) of RM58.9m was within expectations, making up 71% of street’s FY12E RNI of RM83.5m. However, it only made up 66% of our FY12E RNI because we imputed net gains on disposal of Kayangan Depot (RM5.9m; estimated recognition in 4Q12); if stripped-off, 9M12 made up 70% of our adjusted FY12E RNI of RM83.6m. 

Dividends  3Q12 GDPS of 4.30 sen, including 0.08 sen non taxable portion based on 99% payout, implying 9M12 GDPU of 13.0sen.  

Key Results Highlights   YoY, 9M12 RNI rose 23% on the back of full/new contributions of Axis Eureka and the industrial properties in Seberang Prai and Bayan Lepas (early 1Q12). They also achieved rental reversions of 0% to +25% for 5.75% of their portfolio’s NLA. Finance  cost was also lower by 9% on lower gearing of 30% during most of 9M12; gearing only inched up to 34% towards end 3Q12 because the group was near completing its acquisition of Wisma Academy/Annex. 

QoQ, 3Q12 RNI was slightly lower by 3% to RM19.2m largely due to flat topline growth and 10% rise in finance cost to RM5.6m due to reasons mentioned above. 

Occupancy rate fell to 93.4% (2Q12: 97.7%), but it will be ‘temporary’ and has been reflected in our estimates (refer overleaf). 

Outlook  We expect placement of 90.76m new units to take place soon*. The group is negotiating RM608m asset acquisitions for FY13E. 

Change to Forecasts     Maintain our FY12-13E  GDPU of 18.7-17.5sen, implying yields of 6.2%-5.8%, which has been adjusted for timing of placements*. 

Rating  Maintain MARKET PERFORM

Severe yield compressions over the year near to historical premium gross yield spread (appropriate for its market cap and asset segments) to FY13E 10-yr MGS of 3.3%, implying limited upsides from hereon.

Valuation   No changes to TP of RM3.08 based on target FY13E gross yield of 5.7% or net yield of 5.1%.

Risks  Office and industrial sector risks, including yielddilutive acquisitions. Sector de-rating if investors switch to higher beta developers. Upside bias risks to calls are further compressions in the 10-year MGS beyond our expected FY13E 3.3%.

Source: Kenanga