Ascendas India Trust - DBS Research 2020-02-07: Planting The Seeds Of Tomorrow


Ascendas India Trust - Planting The Seeds Of Tomorrow

  • Harvesting its robust acquisition pipeline to drive DPUs by 11% CAGR over FY21-22F.
  • Well placed to benefit from the buoyant offshoring activities and warehouse development in India.
  • Strong organic growth potential with in-place rents below market transaction levels.
  • Re-pricing acquisition timing, Target Price raised to S$1.85.

Robust operational results drive earnings growth

9M19 DPU of 6.45 Scts; 15% y-o-y increase

  • On a YTD19 basis, Ascendas India Trust (SGX:CY6U)'s DPU of 6.45 Scts represents a 15% y-o-y increase.
  • 3Q19 DPU of 2.12 Scts was c.7% lower q-o-q; due to an expanded share base from a private placement made on 28 November 2019.
  • The YTD19 SGD/INR FX rate only appreciated 0.2% y-o-y; improvement in earnings due to FX variances will be negligible.
  • Total revenue increased 12% mainly due to income from Anchor building at ITPB (completed in May 2019), higher income from aVance Pune, and overall positive rental reversions across its portfolio.
  • Distributable income increased 16% y-o-y due mainly to interest income from the construction funding in Arshiya, AURUM IT SEZ, aVance 5 & 6, aVANCE A1 & A2 and BlueRidge 3.

Portfolio revaluation gain of 11.0% (in INR); 7.4% revaluation gain (in SGD)

  • Portfolio valuation increased S$142m over nine months; revalued on 31 December 2019 vs previous valuation on 31 March 2018.
  • 25-75bps compression in cap rates across portfolio.
  • Most significant revaluation gains from ITPB, aVance Pune, Arshiya Warehouses; of between 13.2% and 15.7%.
  • NAV increased 7% to S$1.09 y-o-y despite the slight decline in SGD/INR rate.

Gearing improved to 28%, post placement

  • S$150m raised from private placement in November 2019; monies are used to pay down debt in the interim.
  • Gearing improved to 28%; debt headroom of S$802m.
  • Debt headroom is more than sufficient to fund our estimated construction/project financing needs of c.S$260m in FY20.
  • Only S$172.8 of debt will be due for refinancing in FY20.
  • Current all-in cost of debt of 6.3%.

Strong double-digit positive rental reversions to continue

  • Continued strong positive rental reversions in most markets
  • ITPC (+34%), The V (+23%) and aVance Hyderabad (+19%) continue with strong double-digit reversions
  • Expiring rents in FY20 mainly in Chennai and Hyderabad; the two states with the highest positive rental reversions YTD19, as such we expect Ascendas India Trust to continue to report robust reversions in FY20.

A forward purchase agreement of a development property in Bangalore

  • Ascendas India Trust is currently reviewing an opportunity in Bangalore at an estimated size of INR7.5bn (S$144m), highlighted as a potential investment opportunity in previous announcements.
  • While we understand that the completion date is still uncertain for now, we believe that when completed, it will be another significant driver to the REIT’s earnings stream in the medium term and will build on its robust inorganic growth profile.

Development updates: Acquisition pace to pick up in 2020 - 2021

  • The construction of MTB 5 in Bangalore expected to complete by 2H20, 100% pre-leased to an IT company and will contribute from FY20F onwards.
  • aVance 5 & 6 where Building 6 has been 100% pre-leased to Amazon; the construction of Building 5 is expected to complete by 1H20 and the manager expects strong leasing interest upon completion.
  • AURUM IT SEZ, potential acquisition of Building 1 by the end of 2020 which has received its occupancy certificate (OC). The property is now 43% committed (33% as of last quarter) and the manager is confident that the property will see strong pre-commitment in the coming quarters.
  • Arshiya 7th Warehouse, expected to complete in 2H20 and is likely to be acquired by the year’s end.

Multiple growth trusts

  • We remain excited about the outlook for Ascendas India Trust given completions of ongoing developments on its books in Bangalore at ITB5 (100% pre-leased to IT company) and potential acquisitions of the final phases on a select number of its construction funding projects. In our estimates, we have assumed the following project completions in our models in the coming years.

Sprinting ahead of its S-REIT peers.

Derek TAN DBS Group Research | Singapore Research Team DBS Research | https://www.dbsvickers.com/ 2020-02-07
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