26 July 2012
Summary of Analyst Report: Axis Real Estate Investment Trust's (REIT) target price RM 3.35, Buy - Hwang DBS Vickers Research
Axis Real Estate Investment Trust's (REIT) acquisition line-up remains strong with agreements for three properties signed (offering 8% to 9% net property income yields), while two more are likely to be firmed up by end-2012.
A majority of the properties under negotiation are tenanted to companies within Axis' current customer base, while Axis Technology Centre 2 (ATC2 an office/warehouse block) is a private equity project by the promoter that is likely to be injected.
Gearing will potentially hit 35% by end-2012, and we think a placement is foreseeable in early 2013.
The REIT will be seeking approvals for renewal of its Income Distribution Reinvestment Plan (up to 2.2 sen of the second quarter of 2012 distributions), additional equity placements (up to 91 million units), management fees payable in units (up to 2 million units) and acquisitions and disposal of properties.
Asset enhancement initiatives for Infinite Centre and Wisma Bintang are on track, and should see strong gains in valuations and rentals when completed (estimated by 2013), which is factored into our forecast.
The REIT is also applying for MSC Malaysia status for various properties, which could result in rental premiums if received due to strong demand from companies.
After modifying our assumptions to account for Kayangan Depot disposal, acquisition of Wisma Academy & Annex and potential acquisitions in the financial year ending Dec 31, 2013 (FY13) (we now assume ATC2 will be acquired in the second half of 2013 instead of in the second half of 2012 at 8% net property income yield), FY12 to FY14 forecast earnings are adjusted by -0.3% to 1.3%.
Long-term growth drivers are intact with strong contribution from ATC2, leading us to lift our target price to RM3.35 (but beta adjusted to 0.6 from 0.5).
FY12 forecast distribution per unit is raised to 19.4 sen after including management fees payable in units (estimated to be 15% of management fees) and disposal gain on Kayangan Depot.