Ascendas India Trust - DBS Research 2017-10-26: Target A Lower Entry Point

ASCENDAS INDIA TRUST CY6U.SI

Ascendas India Trust - Target A Lower Entry Point

Ascendas India Trust (a-iTrust)'s 2Q18 DPU of 1.50 Scts (10% y-o-y) in line with expectations.
Boost from acquisition of BlueRidge 2 and aVance, completion of Victor building last year and positive rental reversions.
Awaiting further updates on proposed acquisition of Indian warehouse portfolio.

We maintain our HOLD call on Ascendas India Trust (a-iTrust) with a lower TP of S$1.15.
While we are excited about a-iTrust’s growth prospects and move into the emerging Indian warehouse industry, due to the limited upside to our TP, we suggest that investors wait for a better entry point.

Consensus currently has a BUY call on a-iTrust on the back of a positive DPU outlook. While we too remain positive on a-iTrust’s outlook, forecasting DPU CAGR of around 7% over FY17-FY20 – on the back of positive rental reversions given favourable demand and supply dynamics in its key markets as well as the ramp-up of earnings from recently acquired or soon to be completed developments – we believe this has largely been priced in for now.
Our HOLD call is based on valuation grounds, given a-iTrust already trades at close to -1SD yield which stands at c.5.2%.

Through its untapped land-bank and sponsor pipeline, a-iTrust has access to over 5m sqft of floor area. Combined with the potential expansion into the Indian modern warehouse space, aiTrust has a visible source of growth over the long term. The ability to execute on these growth opportunities is also supported by its strong balance sheet.
Near term, investors should look out for the finalisation of its proposed acquisition of a warehouse portfolio, as a potential re-entry point.

The key risk to our bullish stance on a-Trust’s DPU is a significant depreciation of the INR, a downturn in the Indian economy which will depress rents or delays in the completion of announced acquisitions and development projects.

a-iTrust reported strong results in 2Q17. DPU rose 10% yo-y to 1.50 Scts partially due to a stronger INR versus as DPU in INR terms only rose 5% y-o-y. However, underlying NPI was robust, jumping 26% y-o-y to S$31.6m. This was largely attributed to the prior acquisitions of BlueRidge 2 and aVance 4, completion of the Victor building in June last year and positive rental reversions.
We understand in Bangalore, Hyderabad and Chennai, a-iTrust has been able to raise rents by 3%, 5- 7% and 13% respectively.
Overall portfolio occupancy remains healthy at 92%, or 96% excluding the recently acquired BlueRidge 2.
Meanwhile, occupancy at BlueRidge 2 has since improved to 66% or 69% (committed) from 62% (committed) in 1Q18. In addition, a-iTrust is in active discussions to fill in another 7% of the building. There was a dip in occupancy at The V from 98% in 1Q18 to 88%. This was largely due to the completion of Atria in September which is 84% committed. On a committed basis, The V’s occupancy was 94% as at end 2Q18.

a-iTrust’s balance sheet remains strong with gearing stable at 30%. However, we expect a-iTrust’s gearing to settle around the 33-34% level post the announced acquisitions and new developments.
Average cost of debt was also stable at 6.5% with the proportion of fixed rate at 93%(96% at end 1Q18).
Due to distribution paid, adjusted NAV per unit dipped slight to S$1.02 from at S$1.05 in the prior quarter.

a-iTrust’s key market in India remain tight with vacancies remaining relatively low or falling further since end June.
In Bangalore (Whitefield), the market vacancy remains stable at 7.7%. However, for Hyderabad (IT Corridor), Chennai (OMR) and Pune (Hinjewadi), vacancies have dropped since to 4%, 3.3% and 6.9% respectively from 4.7%, 6.0% and 8.9% at the end of June. This bodes well for a-iTrust to sustain a similar level of positive rental reversion achieved in 2Q18 over the next few quarters.
Currently, a-iTrust has 13% and 12% of leases up for renewal for the remainder of FY18 and in FY19 respectively.
Over the following few quarters, the trust should also benefit from the recently completed Atria Building at the V as well as the potential acquisition of the Indian warehouse portfolio from Arshiya Limited. Currently, aiTrust is undertaking due diligence on 0.8m sqft of warehouses.

While 2Q18 results were in line with expectations, with limited upside to our TP of S$1.15, we maintain our HOLD recommendation.

Mervin Song CFA DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2017-10-26

DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 1.20 Up 1.150