KUALA LUMPUR (January 20): MIDF Amanah Investment Bank Bhd has lowered its target price (TP) for Axis Real Estate Investment Trust (Axis REIT) to RM3.50 from RM3.55, after the trust posted lower-than-expected results for its fourth quarter ended Dec 31, 2014.

In an announcement yesterday, Axis REIT (fundamental: 1.3; valuation: 0.5) reported core net income (CNI) of RM80.1 million, on lower-than-expected occupancy rates for some of its investment properties.

“Against FY13, FY14 CNI declined 5% to RM80.1m as revenue declined 2% and total trust expenditure increased by 3%. Lower revenue is likely to be caused by the absence of rental income from Axis Plaza throughout most of FY14 as the property was disposed off in 1Q14,” said MIDF in a note today.

The research house noted the REIT has completed the acquisition of three industrial buildings in 4Q14 for RM389 million, and another acquisition is expected to be completed in 1Q15, worth RM45 million.

Going forward, MIDF forecasts 6% CNI growth to RM94.6 million in FY15, but expects core earnings per unit to decline 10% to 17.5 sen, after taking into account the overall lower occupancy rate, higher rental income from new acquisitions and higher financing costs.

“We are reducing our TP by 1% to RM3.50 (from RM3.55) as we lower down our dividend per unit estimate for the first two years on the dividend discount model,” said MIDF, adding that it maintained “neutral” on the REIT.

However, despite the disappointing 4Q14 results and a challenging FY15, the downside is supported by decent dividend yield of 5.0%, MIDF said.

As at 11.02am, Axis REIT fell 1 sen or 0.3% to RM3.51, with a market capitalisation of RM1.93 billion.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)