Period     1Q13

Actual vs. Expectations     1Q13 realized net income (“RNI”) of RM20.5m was within expectations, making up 24% of street and 21% of our estimates.

Dividends     1Q13 GDPU of 4.50 sen, including 0.05 sen non taxable portion. Gross electable portion of 2.20 sen can be reinvested via IDRP (refer overleaf).

Key Results Highlights     YoY, NPI grew by 7% given new contributions from the Emerson facility @ Negeri Sembilan and contributions from Wisma Academy/Annex. RNI growth was more muted at 3% due to increased finance cost (+32%) as borrowings grew by 31% to RM0.5b.

QoQ, NPI was flat (-1%) as the positive rental reversions of 9.9% on 3.3% of the portfolio’s total NLA help negate the loss of Kayangan Depot income. After stripping-out last quarter’s fair value adjustments of RM24m, 1Q13 RNI was flat (-1%) due to higher manager fees.

Gearing remains stable at 0.34x which is near its comfortable gearing levels of 0.35x.

Outlook     Management is still targeting to acquire RM350m worth of properties this year (mostly industrials in Klang Valley and Johor), which will likely take place post GE. Although we gather that new acquisitions are challenging given squeezed cap rates, we believe AXREIT will be able to secure some acquisitions since it is going ahead with its placement. Note that placement of 90.76m new units is now in motion (refer overleaf).

Change to Forecasts      No changes to estimates.

Rating      Maintain MARKET PERFORM

Our MARKET PERFORM call is sector driven.

Valuation     Higher TP of RM3.66 (from RM3.18) as we partly roll-forward to FY14E i.e. our TP is driven by unchanged target net yield of 4.9% (gross: 5.4%) on average FY13-14E NDPU of 17.0sen. This is to reflect a potentially higher DPU accretion from acquisitions, which will be funded post placement.

Risks     Office and industrial sector risks, including yield-dilutive acquisitions and a sector de-rating if investors switch to higher beta developers post GE. If AXREIT does not fully utilize its placement funds on acquisitions, DPUs maybe diluted. The upside risk to our call is further compressions in the 10-year MGS beyond our expected FY13E 3.0%.

Source: Kenanga