Stock Name: AXREIT
Company Name: AXIS REITS
Research House: MAYBANK

Axis Real Estate Investment Trust
(Jan 3, RM2.37)
Maintain buy at RM2.37 with revised target price of RM2.63 (from RM2.60): We are positive on the latest office purchase in Cyberjaya, given its fair pricing as well as attractive 8% net property yield (against 6.9% funding cost). This yield-accretive acquisition is expected to enhance our 2011/12 earnings per share forecasts by 1.5% to 3.4%. We continue to like AXRB's proven track record and hands-on management. Maintain 'buy' with a higher RM2.63 target price (+1.2%).

AXRB has proposed to acquire a four-storey office building (with 116,388 sq ft'' net lettable arae) for RM51.3 million cash from FSBM Holdings Bhd. FSBM, a Bursa Malaysia-listed company, is involved in systems and solutions, communication and multimedia, education and healthcare services. The building is currently 72% occupied. However, it will be fully occupied upon completion of the proposed acquisition as FSBM will take up the remaining vacant space under a six-year lease agreement.

We are positive on the deal, given: (i) fair pricing as the purchase cost is 1.7% below the RM52.2 million market value appraised by an independent valuer; and (ii) the Cyberjaya acquisition is yield-accretive with attractive 8% net property yield (against 6.9% funding cost, assuming capital structure of 30% debt and 70% equity).

We are upgrading our 2011/12 earnings forecasts by 1.5% to 3.4% and target price by 1.2% to RM2.63 to factor in this new asset. Post-acquisition, AXRB's gearing would increase from 0.31 times (as at September 2010) to 0.34 times. With this acquisition, AXRB's total asset value will increase by 4% from RM1.3 billion to RM1.4 billion. It targets to hit RM1.5 billion asset size by end-2011.

AXRB remains one of our top picks for the M-REIT sector. We like its hands-on management and its proven track record in acquiring yield-accretive assets. It is currently trading at 7.8% yield compared with a 7.9% industry average. At our RM2.63 TP, AXRB will trade at 7% implied yield. ' Maybank IB Research, Jan 3