News  Proposed a 1:2 share split, essentially doubling its unit base from 547.8m to 1.1b units.

Comments  We were positively surprised by the announcement as it will lower each unit price which will: (i) make AXREIT more affordable to retail investors, and (ii) improve the marketability and trading liquidity of the stock.

 On top of AXREITs existing unit base of 547.8m, the unit split exercise will also include any units arising from: (i) 20.0% unit placement, (ii) Income Distribution Reinvestment Plan (IDRP), and (iii) Managers Fee’s (refer overleaf).

 The exercise is pending approval from Securities Commission (SC), followed by approval from unitholders on a meeting which date is yet to be fixed for now.

Outlook  To date, AXREIT has signed the SPA for 4 out of 5 acquisitions and is expected to complete the due diligence for the remaining asset (Prai Industrial Facility) soon, by 1Q15.

 AXREIT has already completed the acquisition of Axis Shah Alam DC3 and Axis MRO Hub, while the acquisition of Axis Shah Alam DC2 is expected to be completed by 1Q15.

Forecast  We make no changes to our FY15-16E. We will adjust our per unit data once the exercise is completed. Our FY15E includes the unit placement (83.6m units) which has already been completed, and acquisition of all 5 assets, including the Prai Industrial Facility. We are estimating gross yields for FY15-16 at 6.2%-6.3%.

Rating Maintain UNDERPERFORM

Valuation  Maintain UP and TP of RM3.27 (ex-split: RM1.64) based on an unchanged target gross yield of 6.7% (2.5ppt spread to the 10-year MGS target of 4.20%). While we applaud management’s pro-active efforts in enhancing shareholders’ value and growing the REIT’s portfolio, we are recommending UP due largely to valuations and weakness arising from its exposure to the office segment (38.0% of NLA).

Risks to Our Call  (i) Bond yield compression, and (ii) improvement in the office segment.

Source: Kenanga