Period

1Q16 Actual vs. Expectation

1Q16 realised net income (RNI) of RM22.2m came in within consensus and our expectations, at 22% of both full-year forecasts.

Dividends

An interim dividend of 2.05 sen was declared (which includes a 0.05 sen non-taxable portion). 1Q16 GDPU made up 22% of our FY16E GDPU of 9.29 sen (5.8% yield), hence within expectation. Gross electable portion of 1.0 sen can be reinvested via IDRP (Refer overleaf). Key

Results

Highlights

QoQ, GRI increased by 8.9%, mainly attributable to rental contribution from newly acquired Beyonics i-Park Campus Block A, B, C, and D. Meanwhile, RNI increased by only 1.9% due to drags from higher operating costs (+8.9%) involved for additional properties completed.

Ytd-YoY, topline grew by 1.4% likely on positive reversions and abovementioned contribution from Beyonics i-Park Campus Block A, B, C, and D. However, RNI was reduced by 1.5% due to: (i) higher operating costs (+8.6%) and higher financing costs (+8.0%), for acquisition of Beyonics i-Park Block A, B, C and D. Meanwhile, DPU was flattish at 2.05 sen.

Outlook

AXREIT has completed the acquisition of four industrial properties, which are Beyonics i-Park Campus Block A, B, C and D for RM61.0m in 1Q16, which we have factored into our earnings model previously.

The Letter of Offer (LO) for a logistics warehouse located in SiLC, Nusajaya for RM41m was aborted but we made no changes to our estimates as it was not factored in previously.

The group has accepted a LO for a warehouse facility located at Pasir Gudang, Johor for RM33.0m and a LO for manufacturing facility in Rawang, Selangor for RM42.0m. Assuming net yields of 7.0%, these assets will make up less than 3% of FY16E earnings and gearing will only go up to 0.37x (from 0.35x), hence our call and TP remained unchanged post acquisition. We will impute this into our estimates after signing of SPA.

Change to Forecasts

Unchanged.

Rating

Maintain MARKET PERFORM

Valuation

We maintained our TP at RM1.60, with an unchanged target gross yield of 5.8% based on a +2.0ppt yield spread to our 10- year MGS target of 3.8%.

Our MP call is premised on the fact that we see no convincing near-term catalysts for the stock, while the group is lacking strong DPU accretive catalysts at this juncture as recent acquisitions have been mainly neutral to mildly positive to DPU while there are non-performing assets offsetting the effects of the acquisitions. More exciting catalysts for its DPU are needed to re-rate the stock.

That said, as AXREIT is highly institutionalised and is one of the very few Shariah-compliant MREITs which we believe will help to offer some downside risk protection to the stock.

Risks to Our Call

Upside risks: (i) Bond yield compression, (ii) Better-thanexpected rental reversions, (iii) Better-than-expected occupancy rates in the office segment.

Source: Kenanga Research - 26 Apr 2016