Existing assets still generating healthy income -Axis REIT

by **Cals** Mon 29 Jul 2013, 11:38

Existing assets still generating healthy income
Business & Markets 2013
Written by Hwang DBS Vickers Research
Monday, 29 July 2013 09:48

Axis REIT
(July 26, RM3.45)
Maintain buy at RM3.40 with a target price of RM4.05: Its second quarter of 2013 financial year ending December (2QFY13) net profit ex-unrealised income (RM3 million including net revaluation gains) of RM21 million grew 7% year-on-year (y-o-y) (+3% quarter-on-year [q-o-q]), underpinned by higher revenue (+6% y-o-y; +1% q-o-q) and lower interest costs (-5% on a q-o-q basis).

Top line growth was attributed to rental reversions at existing PROPERTIES [] and rental income from the Emerson industrial facility in Nilai, and Wisma Academy and the Annex in Petaling Jaya. Net property income margin was stable at 85%. Its first half earnings were within consensus expectations but below ours, as we had assumed asset acquisitions in July 2013.

Near-term growth is expected to be driven by continued rental reversions at Axis REIT’s properties (17% and 30% of net lettable area [NLA] to be renewed in 2013 and 2014, respectively) and asset enhancements at Wisma Academy, Axis Business Campus and Infinite Centre. However, acquisitions (RM444 million in potential acquisitions) may be slower due to concerns over debt funding (potentially higher interest costs) and valuations.

On the other hand, Axis REIT’s fundamentals are intact with 32.6% gearing, but it may see higher finance costs as more than 50% of its debt may be refinanced within a year. Axis REIT remains a safe haven and defensive play, offering 6.5% FY14F distribution yield and relatively stronger growth than larger cap defensive stocks. — Hwang DBS Vickers Research, July 26

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This article first appeared in The Edge Financial Daily, on July 29, 2013.