a-iTrust – DBSV

Currency remains a drag

• Strong performance in INR eroded by translation losses

• Operational performance robust but payout ratio is cut to 90% in FY13

• Downgrade to HOLD, TP lowered to S$0.84 based on DDM

Unfavorable currency movements impact performance. Ascendas India Trust’s (a-itrust) underlying performance in INR remained robust with a 23% and 22% jump in revenues and net property income to INR 1,393 m and INR 772m respectively. The stronger performance was due to an enlarged portfolio, coming from the acquisition of aVance & new buildings (Zenith, Park Square ad Voyager). However, the 20% strengthening of the SGD/INR exchange rate resulted in reported revenue and net property income coming in only a mere 2.6% and 1.4% higher at S$32m and S$17.8m respectively. Distributable income was 10.5% lower y-o-y at S$10.3m due to higher dividend distribution tax (DDT) and higher finance costs. Post withholding 10% of distributable income in 1Q13, distributable income was S$9.2m (1.2 Scts, -20% y-o-y)

Underlying performance stable. a-itrust’s underlying operational metrics remained healthy with occupancy at 95% (97% committed occupancy) supported by strong tenant retention rates of c.62%, while renewals were stable. The trust renewed close to 400k sqft in the quarter, of which 150k were forward leasing arrangements. In the coming three quarters, only 9% of its total space is left to be renewed. The trust’s new development project in ITPB also saw strong precommitments with over 26% of its space committed, implying strong demand for space within the IT SEZ in ITPB

Cut in payout ratio to 90%. The manager has cut its payout ratio to 90% in FY13 onwards, with the retained amount to be redeployed to part fund its 600,000 sqft development project, estimated to cost between S$30-S$34m. We see this move as positive as the trust moves towards a more self sustaining model going forward.

SGD/INR to be a drag on earnings in the near term; downgrade to HOLD. While management continues to execute strongly, the strong S$, which strengthened by 20% y-o-y, continues to undermine its ‘true operating performance’. Looking ahead, our DBS economist expects the INR to remain at the 42.5/43.5 level in the next 2 years. Hence, we adjust our currency forecasts, resulting in a c16.4% cut in our distribution assumptions, and a lower TP of S$0.84 based on DDM. Given limited re-rating catalysts in the immediate term and limited upside to our revised TP of S$0.84, we downgrade our recommendation to HOLD.