Ascendas India Trust - DBS Research 2021-01-29: Emerging “Digital Real Estate” Play; Resilient Performance During COVID-19


Ascendas India Trust - Emerging “Digital Real Estate” Play; Resilient Performance During COVID-19

  • Robust operational metrics despite COVID-19.
  • Acquisition momentum to restart; ample debt-funded capacity to acquire.
  • Potential entry into the exciting datacenter space.

Key Highlights of Ascendas India Trust's FY20 results

A commendable performance despite COVID-19.

  • Ascendas India Trust (SGX:CY6U)'s FY20 revenues and net property income in INR terms were 1% and 3% higher y-o-y at INR 10,249m and INR 7,910m, in line with our projections.
  • The strong performance was on the back of:
    1. contribution from Anchor building at IT Park Bangalore (ITPB),
    2. higher portfolio rental reversions (ranging 7% to 28%), slightly offset by
    3. lower utilities and car park income due to COVID-19 lockdown.
  • As a result, distributable income rose by 23% to INR 5,423m. DPU was up 12% to INR 4.73. See Ascendas India Trust's announcements.
  • In S$ terms, due to the depreciation of the INR-S$ rate, Ascendas India Trust's distributable income rose by 18% to S$101.3m, translating to a DPU of 8.83 cents (+8%).

Improved financial metrics; low gearing of 30% empower the Trust with significant acquisition capacity.

  • Ascendas India Trust reported a valuation gain of 5.1% (S$ terms: +0.2%) due to stronger cashflows across its portfolio, led by increases from IT Park Bangalore (+78.1%), IT Park Chennai (+7.4%) and IT Park Hyderabad (+4.3%). This translates to a NAV of S$1.08/unit.
  • Gearing remains low at 30%, which empowers the Trust with up to S$700m (45% gearing) – S$1bn (50% gearing) for potential acquisitions.
  • Ascendas India Trust's financial metrics remain stable : ICR (FY20) was 4.0x, 86% of its debt is fixed, effective cost of debt is 5.3% (-0.2% ppt q-o-q).

Our thoughts and recommendation on Ascendas India Trust

Resilient portfolio performance through the COVID-19 pandemic

  • Ascendas India Trust's portfolio occupancy rates dipped slightly to 94% (vs 96% in 3Q20) due to slight dips in occupancy rates at ITPC and Cyberpearl due to tenants rationalising their space requirements. We note that while physical occupancy rate at ITPB was 81% affected by ongoing works at Endeavour building (MTB5) which is 100% pre-leased to TCS, committed occupancy for the Park remains high at 94%. While the Park’s physical tenant population remains < 10%, collections have remained high at 94%-99% throughout the quarter, implying that tenants are still committed to the space for the length of the lease.
  • Looking ahead, leases representing approximately 23% of Ascendas India Trust's income is expiring in FY21. While there is potential risk of tenants looking to rationalise their space requirements (or return space) when leases fall due, the Manager is confident that half of the space would be renewed, and is taking steps to engage the remaining tenants to reduce the risk of non-renewals.
  • We understand that leasing enquiries have returned in recent months, implying that leasing momentum should improve after the stalemate during the COVID-19 pandemic. However, we expect some weakness in occupancy rates in the coming months.

Trio of real estate classes to support the “digital economy”

  • We remain excited on the myriad of growth opportunities for Ascendas India Trust. Organic growth remains on an upward trend, and coupled with a robust balance sheet, AIT is on the hunt for growth drivers.
  • Ascendas India Trust's manager remains committed to developing a new avenue to grow within the data-center space in India. This will complete its trio of future-ready real estate including IT Business Parks and warehouses. Opportunities may come from a potential greenfield project in collaboration with Sponsor CapitaLand and any deal is likely to be consummated within 1H21. We remain excited on this potential development.
  • The pivot towards the data-center space, where Ascendas India Trust is looking to tap an “under-served” segment of Tier-3 datacenters, should be well received. In fact, with development yields in excess of 10%, we see good accretion when executed upon.

Development project in ITPB – contributing from 1Q21; more acquisitions through the year.

  • The 0.68m sqft development project in Bangalore for TCS, already 100% pre-leased prior to completion, was handed over in 4Q20 and should start contributing in 1Q21. This will add to earnings growth momentum going forward.
  • Ascendas India Trust's manager also plans to acquire these assets in phases during the year:
    1. aVance 6 in Hyderabad and Arshiya warehouse in 1H21;
    2. Advance 5 and Aurum IT SEZ (building 1and2) sometime during the year.
  • Total commitments for these investments range S$200m- S$250m with Ascendas India Trust having ample capacity to debt-fund these acquisitions.

Potential project in Bangalore – deal likely to be concluded soon.

  • Ascendas India Trust's manager had previously highlighted about a potential forward purchase agreement in Bangalore and we expect the Manager to unveil more details soon.
  • Given the vast changes to the operating climate post COVID-19 within the micro market, the Manager is revisiting the terms of the deal to address these issues. Negotiations are close to conclusion.

Revision of estimates.

Derek TAN DBS Group Research | Dale LAI DBS Research | https://www.dbsvickers.com/ 2021-01-29
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