Ascendas India Trust - DBS Research 2018-06-25: The Need For Speed

Ascendas India Trust - DBS Vickers 2018-06-25: The Need For Speed ASCENDAS INDIA TRUST SGX: CY6U

Ascendas India Trust (a-iTrust) - The Need For Speed

  • Enters into forward agreement to purchase for four buildings in Mumbai and Hyderbad for up to INR22.8bn (S$363m) with associated construction funding.
  • Transactions highlight a-iTrust’s ability to source for and execute on DPU-accretive transactions.
  • Deal further supports a-iTrust’s already fast DPU growth profile.



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$1.25.
  • We believe the expansion into modern warehouses last year heralds a new leg of growth for the trust beyond its exposure to the already fast-growing business space sector. This acquisition combined with recently announced redevelopments/acquisitions should result in a-iTrust delivering 3-year DPU CAGR of 13%, 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$1.25 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 is due to its Sponsor Ascendas- Singbridge’s strong track record in the Asian warehouse space.


Untapped landbank.

  • Through its untapped landbank 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.


Valuation:

  • After incorporating the forward purchase of four properties, we raise our DDM-based Target Price to S$1.25 from S$1.22.


Key Risks to Our View:

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


WHAT’S NEW - Accelerates growth plans; To expand portfolio by 36%

  • a-iTrust announced that it has entered into two forward purchase agreements to acquire two buildings each at AURUM IT SEZ in Navi Mumbai and aVance Business Hub in HITEC City, Hyderabad.
  • Post completion of these forward purchase agreements, a-iTrust’s portfolio will increase by 36% to 17.4m sqft from 12.8m sqft currently.


AURUM IT SEZ acquisition

  • Under the forward purchase agreement, a-iTrust will provide construction funding for the development of two buildings with a combined super built-up area (SBA) of 1.4m sqft at AURUM IT SEZ located in Navi Mumbai.
  • Total construction funding will amount to INR5.012bn (S$100.2m). Thereafter, based on certain leasing milestones or 24 months from the actual completion date, whichever is earlier, a-iTrust will purchase both buildings. The purchase price is not expected to exceed INR9.3bn (S$186m) and is to be determined in accordance with a pre-agreed formula which takes into account key factors such as rent, occupancy and capitalisation rates.

AURUM IT SEZ overview

  • AURUM IT SEZ is located within the 5m sqft mixed- use AURUM PLATZ IT Park development in Navi Mumbai. The property is also located on the Thane- Belapur Expressway in Ghansoli, one of the key IT corridors in Mumbai.
  • The SEZ consists of four IT buildings with a total SBA of 2.9m sqft. a-iTrust will acquire two buildings and has the right of first refusal over the remaining two buildings with a combined SBA of c.1.5m sqft.
  • The first building to be acquired has SBA of 0.6m sqft and is expected to be completed in 2H18. Meanwhile, construction of the second building with 0.8m sqft of SBA is expected to be completed in early 2020.
  • Thus far, approximately 0.2m sqft of space has been leased to a leading IT company in its first building.
  • The underlying land for the two buildings has a remaining lease of 47 years, renewable for another two terms of 100 years each.


Forward purchase of aVance 5 & 6

  • a-iTrust announced it has entered into a forward purchase agreement to acquire two buildings, aVance 5 & 6, with a combined leasable area of 1.8m sqft, in aVance Business Hub which is located in HITEC City, Hyderabad.
  • Furthermore, a-iTrust has entered into a separate agreement to acquire five additional buildings in aVance Business Hub 2, a special economic zone adjacent to aVance Business Hub.

aVance 5 & 6 will be acquired under a two-stage process.

  • Initially, a-iTrust will provide construction funding via intercorporate deposits and debentures to the master developer amounting to INR8.874bn (S$177.3m).
  • Thereafter, a-iTrust will acquire the two properties once leasing has reached 90%.
  • The total consideration inclusive of the construction funding is not expected to exceed INR13.5bn (S$270m).
  • If the actual completion date is delayed beyond March 2020 or if other events defined in the share purchase agreement were to occur, a-iTrust has the right to call for the redemption of the debentures.

aVance Business Hub and aVance Business Hub 2 overview

  • aVance Business Hub comprises 10 buildings with a total leasable area of 4.6m sqft, of which nine completed buildings with 3.4m sqft have been leased to leasing IT companies such as HCL, Cognizant, IBM and Amazon.
  • a-iTrust currently owns four buildings with a leasable area of 1.5m sqft.
  • aVance 5 is currently under construction and is expected to be completed in 2H19. Meanwhile, aVance 6 has already been completed and is 98% leased to Amazon.
  • Meanwhile, aVance Business Hub 2 which sits on 14.4 acres of land is to be developed over five to nine years, with seven buildings being planned.


Near-term and medium-term DPU accretion

  • We expect the acquisition to be predominantly funded through debt, thus resulting in a-iTrust’s gearing increasing from 26% as at 31 March 2018 to 38-39% by end-FY21.
  • In the near term, we expect 1-10% accretion to FY19-21F DPU.
  • Due to the medium-term growth from the acquisition of AURUM IT SEZ and aVance 5 & 6, we also raise our DDM-TP to S$1.25.


Maintain BUY with revised Target Price of S$1.25

  • We believe the two acquisitions highlight the ability of a-iTrust to identify DPU-accretive transactions and the tremendous growth opportunities in India.
  • Despite the perennial investor concerns over the depreciation of the INR vs SGD, we think that the strong and visible pipeline of acquisitions underpins the trust’s rapid DPU growth which we estimate to be 13% p.a. over the next three years, among the fastest in the S-REIT universe.
  • Given the healthy growth outlook and still untapped investment opportunities, we maintain our BUY with a revised Target Price of S$1.25.





Mervin Song CFA DBS Vickers | Derek Tan DBS Vickers | https://www.dbsvickers.com/ 2018-06-25
SGX Stock Analyst Report BUY Maintain BUY 1.25 Up 1.220



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