a-iTrust – BT

Stable result

Story: Ascendas India Trust (AiT) reported 2Q08 results in line with expectations. Gross revenues increased 18% yoy to S$29.8m, mainly due to an expanded portfolio (Addition of Vega and Crest in 2H08). Net property income grew a lower 2% due to higher marketing fees and utilities costs. Distributable income grew by 24% yoy to S$13.8m, translating to a DPU of 1.82 cts. For the 1st half of the year, unitholders will receive a total DPU of 3.47cts.

Gearing remains low at 5% currently but is expected to increase to 13.5% after drawing down its loan as construction of its 3 new buildings commences.

Point: Construction schedule is on track with completion targeted in March’10. Of the 3 buildings being constructed, other than a BTS facility, pre-leasing activities, for the other 2, will usually start 6 months prior completion, as guided by management.

On the back of a global slowdown, we view that demand for AiT’s space at its IT parks could soften. As such, we moderate our occupancy and rental rates moving forward; we are now expecting occupancies to decline 5% on the top of a 5% drop in asking rents for AiT’s properties in FY10F.

Relevance: While valuations remain attractive at 0.5x P/BV with an attractive DPU yield of 15-16%, AiT is not unique among the S-REITs, that trade at an average of 0.4x P/BV. As such, we maintain our HOLD call on AiT, with a target price of 0.52 based on 10% discount to our RNAV.