Axis  REIT’s  1Q14  results  were  in  line,  with  earnings  boosted  by incremental  contributions  from  some  assets  and  a  MYR1.61m  one-off gain from Axis Plaza’s disposal.  It announced a  DPU of 5.30  sen, which includes  a  0.80  sen  special  dividend  from  the  disposal.  We  retain  our earnings  forecasts  but  lift  our  DDM-based  FV  to  MYR3.23  (from MYR2.93), after revising our COE assumption. Maintain NEUTRAL.

• In line. Axis REIT’s  1QFY14  core net profit  of MYR22.3m  (+8.5% y-o-y; +3.9%  q-o-q)  was  in  line  with  expectations.  The  REIT  announced  a distribution per unit (DPU)  of  5.30  sen  (+17.8% y-o-y),  which includes  a special DPU of 0.80  sen  arising from the completion of the  disposal of Axis Plaza on 25 March.  Revenue growth continued  to be driven by: i) positive rental reversion from  its  existing assets, and ii)  a  revision  in  car park rates for some assets in Aug  2013.  Earnings  for the quarter  were also  boosted  by  a  MYR1.61m  realised  gain  from  the  disposal  of  Axis Plaza. Note that Axis REIT also announced special dividends of 0.80 sen and 0.77 sen for 2QFY14 and 3QFY14, respectively. These will bring the total special dividend from Axis Plaza’s disposal to 2.37 sen.
• Business  updates.  Axis  REIT  has  yet  to  announce  any  new  asset acquisitions.  However,  it  recently  said  the  Securities  Commission  (SC) has granted  it  an extension until 3 Oct 2014 for the placement of up to 86.0m  new  units.  We  believe  that  this  could  be  an  indicator  of  an impending acquisition, as  Axis REIT’s placement exercises are  typically carried  out  in  tandem  with  the  acquisition  of  new  assets  in  order  to minimise  any  potential  earnings  dilution.  The  REIT’s  gearing  currently stands at 0.32x, leaving it with  a debt headroom of about MYR279.3m before  reaching  the  SC’s  gearing  cap  of  0.5x.  The  REIT’s  overall operations remained  healthy  in 1QFY14,  chalking up an  overall portfolio occupancy of 93.2% and an average rental reversion of 8.9%.
• Maintain  NEUTRAL.  We  make  no  changes  to  our  earnings  forecasts. However,  we  revise  upward  our  DDM-based  FV  to  MYR3.23  (from MYR2.93), based on a new cost of equity (COE) of 7.5% (from 8.1%), as we believe that our previous COE assumption was too conservative. We reiterate our view that the acquisition of yield-accretive assets will be the stock’s potential re-rating catalyst.

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Company Profile
Axis REIT is a diversified REIT specialising in commercial and industrial properties.

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Source: RHB