Apr 22, 2010

AXIS Reit - Maintain Buy : AM

Closing in to RM1bil AUM 

axis-reit Price: RM2.00
Fair Value: RM2.37

•  We maintain our BUY rating on Axis REIT (Axis) with our fair value unchanged at RM2.37/unit. This is after applying 5% discount to our DCF valuation of RM2.49/unit.  
•  Axis’ 1QFY10 net income came in at RM12mil, accounting for 21% of our estimates of RM57mil. We deem the result to be in-line although it could have been stronger – 1.5 month loss of rental income from SADC 1 due to refurbishment exercise. Group declared an interim dividend of 3.7 sen/unit. 
•  Against corresponding period of last year, net income rose 12%. This is due to contribution from new acquisitions made last year – Axis Steel Centre and an industrial property in Penang.
•  Axis also announced that it was buying a warehouse/office property in Johor for RM30mil (RM160psf) with yield of 9.2%. Located within Port Tanjung Pelepas, it boasts a gross built-up area of 187,000sf. The completion of this acquisition would see its AUM climb to
RM958mil – close to its AUM target of RM1bil.  
•  We understand this acquisition will be fully funded by debt at a rate of 4%. But management indicated that it plans to place out about 68mil units to de-gear its balance sheet given that current gearing is already at its target of 35%. 
•  We are positive on this buy due to a 10-year lease already secured with reputable tenant Nippon Express (with 3-yr option). From our rough estimates the new acquisition would
raise our EPU for FY11F-FY12F by 3%-4% to 19sen- 21sen. No changes have been made to our numbers, as the deal has not been completed.
•  Elsewhere, we understand that 84% of Quattro West has been taken up with three tenants and Axis is targeting for the building to be fully leased by June 2010. We have assumed
85% occupancy plus six months rental income into our model - hence we retain our estimates.
•  Portfolio occupancy improved slightly to 96% from 95% previously due to new acquisitions although refurbishment of SADC had an impact on tenancy level. 

source: AM Research