Ascendas India Trust - DBS Research 2017-11-27: Storing Up Growth

Ascendas India Trust - DBS Vickers 2017-11-27: Storing Up Growth ASCENDAS INDIA TRUST CY6U.SI

Ascendas India Trust - Storing Up Growth

  • Acquisition of six Indian warehouses for up to INR5.34bn (c.S$112.5m) has been finalised.
  • To sign an initial six-year master lease with vendor with option to acquire 2.8m sqft of additional warehouses.
  • 3-6% accretion to FY18-20F DPU.

Transformative deal. 

  • We upgrade our call on Ascendas India Trust (a-iTrust) from HOLD to BUY, with a revised TP of S$1.25.
  • We believe the acquisition of a portfolio of warehouses is a transformative transaction and heralds a new leg of growth for the trust beyond its exposure to the already fast growing business space sector. This acquisition combined with other announced redevelopments/ acquisitions should result in a-iTrust delivering an SREIT leading 3-year DPU CAGR of 9%, three to four times the average SREIT.   

Where we differ – Above consensus target price. 

  • Compared to consensus, we have a higher TP of S$1.25 as we believe the expansion into the modern Indian warehouse sector warrants a premium not only given the boost to a-iTrusts’ near term DPU but more importantly the ability to accelerate its medium-term earnings. 
  • Our confidence in a-iTrust’s ability to execute on its warehouse expansion plans is due to its sponsor AscendasSinbridge’s strong track record in the Asian warehouse industry.

Untapped land-bank. 

  • Through its untapped land-bank and sponsor pipeline, a-iTrust has access to over 5m sqft of floor area. Combined with the recent expansion into the Indian warehouse space which provides for a potential acquisition pipeline of 2.8m sqft, a-iTrust 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.


  • After incorporating the expansion into the Indian warehouse industry and rolling forward our valuation to FY19, we raised our DDM-based TP to S$1.25 from S$1.15.

Key Risks to Our View

  • The key risk to our bullish stance on a-iTrust’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.

What’s New – Expansion into the modern warehouse sector

  • a-iTrust announced that it has signed a binding agreement with Arshiya Limited for the acquisition of six modern warehouses with total floor area of 832,000 sqft in Panvel following the signing of a term sheet in April this year.
  • Panvel is an important warehousing hub and is in close proximity to Jawaharlal Nehru Port Trust which handles c.56% of India’s container traffic. It also has easy access to the key markets of Mumbai city, Thane, Kalyan, and Vashi.
  • The total consideration for the warehouses consists of an upfront payment of INR4.34bn (S$91.4m) and an additional deferred consideration of up to INR1bn (S$21.1m) to be paid over the next four years, linked to the achievement of certain performance milestones. This is line with the term sheet from earlier this year.
  • We understand the acquisition NPI yield is in the low double digit range.

To enter into 6-year master lease agreement

  • On completion of the acquisition in the next 1-2 months, Arshiya will enter into an agreement with aiTrust to lease the warehouses for a period of 6 years with inbuilt annual rental escalations. Arshiya will continue to operate and manage the warehouses and pay the pre-agreed rentals to a-iTrust as a-iTrust currently does not have any experience in managing warehouses in India.
  • Currently the warehouses are close to fully occupied with major tenants being DHL Logistics, Huawei and Cisco. We understand underlying leases are typically between 1-5 years and rents are close to what Arshiya will pay a-iTrust under the master lease agreement.
  • Rents for warehouses in free trade zones are between INR50-70 per sqft per month.

Secures pipeline for future warehouse acquisitions

  • The warehouses are located within a Free Trade Warehousing Zone (FTWZ) in Panvel spread over 146 acres of freehold land and Arshiya has substantial land bank estimated to be at least 2.8m sqft to build additional warehouses. This will provide a future acquisition pipeline for a-iTrust.
  • a-iTrust has also entered into an agreement with Arshiya with an option to part-fund the construction of future warehouses within the FTWZ.
  • In addition, a-iTrust has the exclusive rights (and in certain cases, the obligation) to acquire all future warehouses. The acquisition of future warehouses is based on a pre-agreed cap rate framework and subject to due diligence and completion of conditions precedent.

3-6% accretion to FY17-19F DPU estimates

  • Post the acquisition, we estimate a 3-6% accretion to our FY17-19F DPU.
  • Underpinning this forecast is our assumption that the acquisition will be funded through a combination of debt (40%) and an equity placement which we have assumed will take place at the start of FY19 at an issue price of S$1.05.
  • We estimate gearing will initially climb to c.36% as aiTrust uses debt to pay for the initial upfront payment of INR4.3bn (S$91.4m). Post the equity raising, we expect a-iTrust to pare down its borrowings, with gearing to stablise around the 33% level.

Positive move into the warehouse industry and expands its acquisition pipeline

  • We are positive on the proposed acquisition given the expected DPU accretion and further portfolio diversification but more importantly the transaction in our view is transformative as it provides a-iTrust with exposure to the emerging modern Indian warehouse sector and another visible acquisition pipeline. This will provide the trust with another leg of growth and further accelerate its medium term growth profile.
  • Demand for modern warehouse spaces we understand is being driven by the e-commerce sector. An additional boost to demand, will also arise following the introduction of the GST and elimination of state taxes.
  • Currently, to navigate the different state taxes, smaller warehouses are used in each individual state close to the various state borders. The introduction of GST should spur operators to consolidate their warehousing needs into more efficient and larger modern facilities that can serve multiple states. Demand for modern warehouses according to KPMG is expected to grow annually by 20-25% over the next five years.
  • Upgrade to BUY with revised TP of S$1.25.

Mervin Song CFA DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2017-11-27
DBS Vickers SGX Stock Analyst Report BUY Upgrade HOLD 1.25 Up 1.15