Ascendas India Trust - MANAGEMENT REPLY: Will it loan S$200 mln to grab growth opportunities?

5/11/2013 - DBS Vickers Research expects continued weakness in the Indian Rupee (INR), which will continue to hurt Ascendas India Trust's earnings.

Hence, it maintained a HOLD rating with a target price of S$0.73.

According to market research report by Jones Lang LaSalle Meghraj, Bangalore's overall vacancy rates increased from 6.9% to 7.9% from the previous quarter.

In Whitefield, the micro market where International Tech Park Bangalore (ITPB) is located, vacancies stood at 13.5%.

JLL expects rents in Whitefield to be stable in 2013.

In Chennai, overall vacancy increased slightly from 22.2% the previous quarter to 23.1%.

In Old Mahabalipuram Road, the micro market where International Tech Park Chenna (ITPC) is located, vacancies stood at 27.2%.

JLL expects the vacancy levels to remain stable in 2013 although there is substantial amount of new space slated for completion.

In Hyderabad, overall vacancy increased from 7.0% the previous quarter to 9.7%.

In Hitec City, the micro market where The V, CP and aVance are located, vacancies stood at 5.4%.

JLL expects market rents and occupancy to remain stable in 2013.

The company just announced these earnings for Q2 FY14 on October 25:

Net property income: -5% to INR802 mln
Distributable income: +19% to INR544 mln
Distributable income: +8% to S$11.2 mln
DPU: INR0.53 vs INR0.53
DPU: 1.10 S cents vs 1.20 S cents
Cash flow from operations: S$16.2 mln vs S$15.3 mln

The decline in net property income was mainly due to the 17% depreciation of the Indian Rupee against the Singapore Dollar.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

Question

1. Will it loan S$200 mln to grab growth opportunities?

There is close to 1.9 mln of additional net lettable area (NLA) at its Special Economic Zone (SEZ) at its International Tech Park Bangalore and there are asset injection opportunities from its sponsor Ascendas Land International and Ascendas India Development.

Ascendas India Trust would not have problems raising financing, at least from a leverage perspective.

Low gearing of 21% opens opportunities for growth and allows the Manager to look for growth opportunities to gear the trust back towards the 30% to 35% comfort level in the medium term.

DBS Vickers Research says this implies it could loan up to S$200 mln.

Management reply: a-iTrust has seized multiple growth opportunities since listing, increasing its floor area by 11% CAGR from 3.6m sq ft at listing to 6.9m sq ft as at September 2013. The Trust’s growth in floor area is one of the highest within the Singapore REIT industry.

Going forward, a-iTrust will continue to grow sensibly via (i) organic development as it develops its land bank to meet market demand over the next few years (ii) acquire stabilised assets from the sponsor, as and when the sponsor is ready to divest, and (iii) acquire from the market, including the aVance Business Hub pipeline. a-iTrust will acquire aVance 3 (690,520 sq ft IT building) once it is substantially leased. In addition, a-iTrust has a conditional agreement with the same vendor to acquire a further 1.1m sq ft of properties, and a right of first refusal to acquire 1.2m sq ft of IT buildings.

Question

2. What is the income expected from Aviator?

Construction of Aviator, a 601,630 sqft development in Bangalore is on track.

It has a pre-commitment of space at 100%, thereby reducing execution risk for this development.

The property is 85% completed and is expected to achieve completion by end of 2013.

DBS Vickers Research expects this property, which forms close to 8.6% of the portfolio NLA, to underpin the longer term earnings growth potential.

Management reply: We do not provide specific income guidance, but the rents that have been locked in Aviator are largely in line with the rest of the existing portfolio.

(Total:4 questions)

We thank management for its response

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