KUALA LUMPUR — Axis Real Estate Investment Trust (Axis REIT)’s 9M16 realised net income (RNI) of RM67.1 million came in below Kenanga Research’s expectations at 66%, as the local research house had expected stronger quarters ahead from new asset contributions and stronger reversions and occupancy.
Its first nine months (9M16) gross distribution per unit (GDPU) of 6.15 sen was also below expectations (66%) while Axis REIT announced the disposal of Axis Eureka.
“We are lowering FY16-17 expected earnings to RM93.2 million and RM103.2 million, and reiterate our ‘market perform’ call with a reduced target price of RM1.71 (from RM1.80), based on a +1.85 percentage point yield spread to our 10-year Malaysian Government Securities (MGS) target of 3.6%,” Kenanga Research analyst Marie Vaz said in a report published yesterday.
Distribution-wise, an interim dividend of 2.05 sen was declared (which includes a 0.07 sen non-taxable portion).
Year-on-year, 9M16 RNI fell 3.9% due to higher operating costs (+15.1%) and higher financing costs (+6.4%), for the acquisition of Beyonics i-Park Block A, B, C and D, on the back of flattish gross rental income (GRI) of +0.6%.
“Meanwhile, quarter-on-quarter RNI was flattish at (+0.3%) on the back of flattish GRI (+0.5%) and higher financing cost (+1.0%).
Axis REIT also announced the disposal of Axis Eureka, a four-storey office building in Cyberjaya, for a total cash consideration of RM56.1 million to Malaysian Qualifications Agency. The net gains on disposal of RM1.2 million will be distributed back to shareholders upon completion, likely in FY17, translating to an additional 0.11 sen (1.1% of Kenanga’s FY17 expected gross distribution per share of 9.8 sen).
“Axis Eureka has been recording below-average occupancy at 59% while its contributions to earnings is not significant (<2.5% to FY17 expected GRI). All in, we are neutral to mildly positive on this disposal.
“The REIT is also finalising the completion of the acquisition for two industrial assets, namely a warehouse facility located at Pasir Gudang, Johor (RM33 million) and an industrial complex in Rawang, Selangor (RM42 million), which we have already imputed to accrete mostly in FY17 expected earnings,” Vaz said.
She is maintaining the house’s ‘market perform’ call on Axis REIT as she sees no convincing near-term catalysts while foreseeable downside risks have been accounted for. Additionally, the group lacks strong distribution per unit (DPU) accretive catalysts as recent acquisitions and disposals have been mainly neutral to mildly positive to DPU (<5%).
“More exciting catalysts for its DPU are needed to re-rate the stock. That said, Axis REIT is highly institutionalised and is also one of the very few shariah-compliant Malaysian RTEITs which we believe will help to offer some downside risk protection,” Vaz said.