Analysts upbeat on REIT market

ANALYSTS remain upbeat on the real estate investment trust (REIT) market, with Axis REIT being one of the more favoured stocks.

The company is expected to release its full year results this Thursday for FY08 ended Dec 31.

An analyst with HwangDBS Vickers Research said Axis REIT was expected to deliver dividend per unit of 14.3 sen, or 12% gross yield, compared with 11% industry average in FY08.

Despite the weaker property market, it was anticipated that there was little risk of asset devaluation and tenancy non-renewals for Axis REIT given its diverse tenant mix, where only 19% of leases will expire in FY09 forecast.

“However, we have trimmed our FY09 and FY10 forecast net distribution by 8% and 9% respectively to reflect flat rental growth and one percentage point increase in interest cost, but maintain a “buy” call on Axis REIT for its strong operating cashflow and attractive 12% yield,” the analyst said.

“We believe Axis REIT’s RM1.65 net asset value per unit is intact despite the current weak sentiment, as demand for office and warehousing space in prime locations remains stable, and foreign direct investments have not dropped significantly in recent months.”

He said Axis REIT’s tenant mix comprised of 55% of properties in Petaling Jaya, 21% in Johor, 15% in Shah Alam and 5% each in Klang and Kedah.

“About 75% of Axis REIT’s properties are offices and warehouses, and the locations and tenant mix should cushion the REIT against a slowdown in demand in any one particular market segment or location,” he said.

The analyst said Axis REIT’s properties achieved 11% average gross property yield for 2008 and only about 19% of its leases were due for renewal in FY09.

“The tenancy renewal risk is low,” he said.

On the company’s expansion plans, the analyst said Axis REIT was unlikely to proceed with its planned placement of up to 120 million new units in the near term due to the weak market sentiment.

“Given its 33% gearing against the maximum allowable limit of 50%, we conservatively assumed that there will not be any acquisition for Axis REIT in FY09 to FY10. Management will only consider new purchases if they are accretive to unitholders,” he said.

On financing issues, the analyst said Malaysian banks were unlikely to pull back credit lines for properties with secured long-term tenants.

“But interest rates could rise slightly because of higher risk premium as a result of the global financial crisis,” he said, adding that the research unit estimated that for every one percentage point increase in interest rate, it will reduce Axis REIT’s FY09 forecast distribution by 5.4%.”

By The Star (by Danny Yap)