Ascendas India Trust - DBS Research 2018-04-26: On The Fast Lane

Ascendas India Trust - DBS Vickers 2018-04-26: On The Fast Lane ASCENDAS INDIA TRUST CY6U.SI

Ascendas India Trust - On The Fast Lane

  • Ascendas India Trust (a-iTrust)'s 4Q18 DPU of 1.65 Scts (+7% y-o-y) largely in line with expectations. 
  • Higher earnings underpinned by previously announced acquisitions/developments and positive rental reversions. 
  • New 1.2m sqft building at the V to further enhance the trust’s medium-term growth outlook. 

One of the fastest growing S-REITs.

  • We maintain our BUY call on Ascendas India Trust (a-iTrust) with a revised Target Price of S$1.22. 
  • We believe the recent 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 3-year DPU CAGR of 8%, three to four times faster than the average for the S-REIT sector. 

Where we differ – Above consensus target price.

  • Compared to consensus, we have a higher Target Price of S$1.22 as we believe the expansion into the modern Indian warehouse sector warrants a premium not only from the boost to a-iTrust’s near term DPU but more importantly, the ability to accelerate medium-term earnings growth. 
  • Our confidence in a-iTrust’s ability to execute on its warehouse expansion plans is due to its Sponsor Ascendas-Singbridge’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 a larger than expected equity raising and weaker INR, we lowered our DDM-based Target Price to S$1.22 from S$1.25. 

Key Risks to Our View: 

  • 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. 

WHAT’S NEW - Delivers again

4Q18 DPU up 7% y-o-y

  • Ascendas India Trust (a-iTrust) 4Q18 DPU increased by 7% y-o-y to 1.65 Scts which was largely in line with expectations. Due to this strong last quarter of its financial year, Ascendas India Trust (a-iTrust) delivered DPU of 6.10 Scts in FY18 (+7% y-o- y).
  • The improvement in 4Q18, similar to prior quarters, was attributed to previously announced acquisitions and developments such as Victor, BlueRidge 2, aVance 4 and Atria) as well as the impact from positive rental reversions achieved in prior quarters, offsetting the depreciation of the INR versus SGD.
  • These factors also contributed to 4Q18’s revenue and net property income (NPI) in SGD terms increasing by 12% and 15% y-o-y respectively.

Supportive market dynamics boosting rents

  • Owing to the favourable demand and supply dynamics in a-iTrust’s key markets, in-place rents rose across the portfolio. Rents at the Hyderabad and Chennai properties rose by 5-10% and mid to high teens respectively. 
  • Meanwhile, rents in Bangalore increased by a more modest 1-2%. Overall, average rents for a- iTrust’s portfolio grew by c.5%.

Healthy occupancy levels

  • Overall portfolio occupancy remained healthy, inching up to 95% from 94% in 3Q18 and 92% in 4Q17. The improvement in occupancy was largely driven by BlueRidge where committed occupancy now stands at 81% up from 72% in 3Q17 and 55% in 4Q17. We understand that a-iTrust has executed a letter of intent over 3.4% of the building and another 3.3% of space is under advanced discussions.
  • a-iTrust’s other buildings are also close to fully occupied (occupancy of 96-100%) with the exception of The V, where occupancy fell to 93% from 99% in 4Q17. The decline is largely due to the trust relocating clients as it is about to commence redevelopment works at the property.

Redevelopment at The V

  • In 3Q18 results, a-iTrust announced that following discussions with the local authorities, it has received in principle approval to increase plot ratio for The V property. The existing master plan allows for 1.7m sqft of leasable area which has now been increased to 4.5m sqft.
  • On the back of an increase in plot ratio, in the first phase, a-iTrust has now finalised plans for the demolition of the Auditorium and Auriga building which will result in the loss of around 200,000 sqft of NLA. However, in its place, a new 1.2m sqft building will be constructed with a target completion in a couple of years’ time. 
  • We estimate the total construction costs to be around the S$100m mark and we understand a-iTrust is targeting a yield of cost in the teens.

Gearing drops to c.26%

  • At end March 2018, gearing fell to c.26% from c.31% at end 3Q18. This is largely due to 9-40% increase in property values and recent S$100m equity raising. a- iTrust’s properties are now valued on a 9.0-9.5% cap rate compared to 9.75-10.75% cap rate previously.
  • The large debt headroom of c.S$650m now provides a-iTrust with sufficient runway to execute on its growth plans.
  • Due to the increase in property values, net asset value per unit rose to S$0.90 from S$0.79 at end December 2017.
  • Effective weighted average cost of debt was relatively stable at 6.3% with the proportion of fixed rate debt around 90%.

Tweaking DPU estimates lower

  • While 4Q18 DPU was largely in line with expectations, we have lowered our FY19-20F DPU by 2-7%. This is to account for the larger than expected S$100m equity placement which compares to our earlier assumption of S$68m equity raising as well as the loss of income from closure of 200,000 sqft building at the V over the next couple of years. Furthermore, given the recent INR weakness, we have imputed a SGD/INR exchange rate of 50 versus 49 previously.
  • On the back of the lower DPU estimates, we have also lowered our DDM-based Target Price to S$1.22 from S$1.25.

Maintain BUY with revised Target Price of S$1.22

  • Due over 20% capital upside, we maintain our BUY call with a revised Target Price of S$1.22.
  • We continue to like a-iTrust for its strong DPU growth outlook (3-year DPU CAGR of 8%) and with gearing now only at 26% it is well positioned to take advantage of opportunities in both the business park and warehouse sectors.

Mervin Song CFA DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2018-04-26
SGX Stock Analyst Report BUY Maintain BUY 1.22 Down 1.250