Ascendas India Trust - DBS Research 2021-03-08: A Tiger With Wings!


Ascendas India Trust - A Tiger With Wings!

  • Surprise acquisition of industrial facility implies Ascendas India Trust has hastened its acquisition pace to drive earnings.
  • Recent strength in the S$/INR rate a possible tailwind.
  • Further potential deals in the datacenter space to drive re-rating.
  • Maintain BUY for Ascendas India Trust (SGX:CY6U), target price S$1.85.

Catalysts abound for Ascendas India Trust

  • We see multiple catalysts ahead for Ascendas India Trust (SGX:CY6U) to drive its share price higher. The surprise acquisition of an industrial facility in India coupled with recent strengthening INR/S$ rate will likely support an improvement in operational results in 1H21.

Our thoughts:

Hastening acquisition pace is positive.

  • Ascendas India Trust has started 2021 on a bright note with the acquisition of two properties in India. The latest purchase is an industrial facility which is Ascendas India Trust’s first diversification into the industrial sector in Mahindra World City, Chennai.
  • We believe that Ascendas India Trust is just at the start of its acquisition journey in 2021 and we believe that more of such deals will be executed as the year progresses.

Forward purchase agreement for industrial facility enlarges pipeline.

  • The most recent purchase by Ascendas India Trust is a forward purchase agreement for a Grade-A industrial facility in Mahindra World City, Chennai for INR 2.1bn (S$38.3m). Ascendas India Trust to provide construction funding of INR 1.4bn (S$25.5m) to compete the project. The vendor is Casa Grande Group, which is developing the project over two phases.
  • Phase 1 of the project is a 0.42m sqft industrial facility fully pre-leased to Pegatron Corporation, a listed Taiwanese contract electronics manufacturer, thus reducing income risk. Pegatron will lease the property for 7 years (lock-in plus escalations) upon completion by 2H21. Ascendas India Trust to provide additional funding to complete phase 1 of the development project and have the option to provide additional funding for 0.37m sqft expansion (Phase2), subject to leasing milestones and conditions. Project to be fully debt-funded with Ascendas India Trust’s gearing still at a conservative level of ~31% post the deal.

Expanding its hunting ground.

  • Ascendas India Trust has quickly put itself firmly back onto the growth path with a forward purchase of an industrial facility which represents a diversification to its overall portfolio, which includes IT Parks (or offices), logistics assets and potentially (data-centers). We see management taking a cautious approach in its first purchase with an end-user (100% leased to Pegatron Corporation) already in place with a firm commitment and a long weighted average lease expiry (WALE) of 7 years.
  • The targeted asset is located within an established industrial zone within Mahindra World City with global multi-national companies (MNCs) such as BMW, Fujitec, NCR, and Braun having an operational presence there. This implies demand for space within the micro-market will remain resilient in the medium term given ample employment opportunities there.

Accretive deal with positive attributes.

  • We like the expanded pipeline available to Ascendas India Trust (+0.37m sqft for Phase2). With ample gearing capacity (gearing of ~30 as of Dec 2020), Ascendas India Trust has significant financial capacity to capitalise on opportunities to deliver growth to unitholders. We estimate the initial yield to be ~8% and the deal to raise DPU by ~0.5%-0.7%.

Further catalysts to look out in 2021.

  • We believe that Ascendas India Trust is well positioned to execute on its acquisition initiatives in 2021 and we project a robust 7% growth in DPU in FY21, driven by
    1. contribution from MTB 5 in Bangalore that is fully leased by TCS from 1Q21,
    2. contribution from the recent acquisition of aVance 6 from 2Q21 and
    3. contribution from the above acquisition from 2H21 onwards.
  • In addition, we believe that potential further pipeline acquisitions include the possible pivot into data-centers, which would augment Ascendas India Trust as a unique “tech” real estate play in India.

Strengthening S$/INR rate a possible positive.

  • In addition, the recent strengthening of the INR/S$ rate may be a potential positive for Ascendas India Trust's earnings come 1H21 as the manager undertakes monthly hedges in order to limit the impact of income volatility on Ascendas India Trust’s distributions.

Sprinting ahead of its S-REIT peers.

  • We maintain our BUY call on Ascendas India Trust with target price unchanged at S$1.85, implying 1.25x P/adjusted NAV.
  • After a quiet 2020, Ascendas India Trust has accelerated its acquisition pace in 1Q21 and coupled with stable S$/INR rate, we see catalysts to bring the stock higher.
  • Ascendas India Trust is projected to deliver a robust DPU CAGR to accelerate to 8% in FY21-22F, driven by acquisitions.

Where we differ: Above-consensus growth.

Derek TAN DBS Group Research | https://www.dbsvickers.com/ 2021-03-08
SGX Stock Analyst Report BUY MAINTAIN BUY 1.850 SAME 1.850