Period 3Q13/ 9M13

Actual vs. Expectations 9M13 realized net income (RNI) of RM63.8m was within expectations, making up 72% of street and 71% of our estimates.

Dividends  3Q13 GDPU of 4.7 sen (includes a 0.05 sen non-taxable portion), of which 2.2 sen is the electable portion for the 4th round of the Income Distribution Reinvestment Plan (IDRP).

Key Results Highlights QoQ, RNI increased by 4% on the back of flattish NPI growth due to a 3% decrease in operating cost to RM5.1m on better cost management efforts. The flattish NPI was largely due to a slight drop in occupancy rates from 95.6% to 94.7%.

 YoY, 3Q13 PAT rose 90% to RM36.7m as the quarter saw RM14.6m fair value adjustments compared to none in 3Q12. Corresponding RNI rose 15% on the back of a 3.5 ppt improvement in EBIT margins to 77.9% on similar reasons stated above. 9M13 RNI was up by 8% due to new contributions from Wisma Academy and The Annexe, 8.11% rental reversions on 6.8% of the portfolio’s NLA which helped to offset the higher finance costs (+16%) arising from higher gearing levels.

Outlook  To date, AXREIT has yet to announce any new acquisition although they have previously guided that they are looking to acquire RM380m-RM400m worth of assets in FY13. They have also yet to complete their share placement exercise as no acquisitions have been made and have been granted an extension till April 2014 to allot and issue the 90,762,819 new units for the placement.

Change to Forecasts No changes to estimates.

Rating Maintain MARKET PERFORM We maintain our MARKET PERFORM view as we see minimal DPU catalysts and expect acquisitions to be slow, while newly acquired assets to contribute to minimal accretions to DPU given the low cap rate environment.

Valuation  Maintain TP of RM3.41 based on FY14E target gross dividend yield of 6.1% (net: 5.4%)

Risks to Our Call Bond yield expansion, office and industrial sector risks, office space supply glut in the Klang Valley, and yield dilutive acquisitions

Source: Kenanga