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.

New buildings filling up

• 4Q12 DPU of 1.46 Scts in line

• New buildings ramping up; S$ continues to moderate true earnings potential

• BUY with revised S$0.91 TP; Yields of c.8% attractive

Highlights

DPU of 1.46 Scts. Total property income and net property income were 10% and 18% higher y-o-y at S$34.3m and S$19.4m respectively. The better performance was mainly driven from portfolio expansion where the trust saw maiden rental income contribution from newly completed acquisition of aVance Business hub (not full month contribution) while (Zenith, Park Square ad Voyager) continue to ramp up. Distributable income however shrank by 2% to S$11.2m, from a stronger S$, higher interest costs from financing of its development activities and taxes, translating to a DPU of 1.46 Scts (-3%). There was a revaluation gain of close to S$8m, but NAV declined to S$0.71 (-11%) due to unfavorable translation rates.

Our View

Strong S$ vs INR exchange rate moderated earnings; underlying performance robust. The strong S$-INR, which has appreciated 10% since a year ago, moderated the operational performance in INR terms, with topline/net property income growing by 22%/30% y-o-y to INR 1,352m/INR764.7m. On a q-o-q basis, a-itrust rental income and net property income increased by 10% and 6% respectively.

Occupancy levels are high and improving. Average portfolio occupancy was stable at 97%, excluding the new buildings which are at 98% (Zenith), 80%(Park Square) and 82% (Voyager) occupied respectively, with the balance actively marketed and we believe will soon be filled up. In addition, we note that a-itrust has added an additional 10% space to the planned 540k sqft multi-tenanted building at ITPB, implying the strong demand for quality space at that location. This building is expected to complete in Dec’13 and should start contributing to earnings from FY15 onwards.

Recommendation

Maintain BUY, TP revised to S$0.91. Our earnings estimates are adjusted slightly to account for higher interest costs and phased out contribution from new buildings. Stock continues to offer an attractive prospective FY13-14F yield of c. 8%.

Loss in translation

At a Glance

• Strong underlying results in 3Q12, forming 72% of full year forecasts

• New developments seeing robust pre-commitments; quarters ahead to record incremental growth

• Maintain BUY, TP of S$0.87 maintained

Comment on Results

16% appreciation of S$ against INR eroded topline growth to a mere 2% y-o-y. Ascendas India Trust’s (a-itrust) reported revenue and net property income (NPI) of S$30.6m (+2% y-o-y) and S$17.5m (+3% y-o-y). In INR terms, underlying operational performance was robust, with topline/NPI each growing by 19% yo-y to INR 1.23bn/INR 0.7bn. Progressive recognition of rental income from new buildings (Zenith, Park Square ad Voyager) was the major contributor. Organically, a-itrust’s portfolio has exhibited resilience with occupancy remaining a healthy 95% supported by strong tenant retention rates of c79%, while renewals remained stable. Distributable income was lower by 12%% y-o-y to S$11.6m (DPU of 1.5 Scts), due to a stronger S$ and higher interest expenses incurred for its developments. Compared to 2Q12, performance was relatively flat.

Park Square opened to a fanfare; Zenith/Voyager seeing positive take-ups. a-itrust officially launched Park Square in Dec11and lease commitments are strong at c.87% – with major anchors to start operations soon. Its other 2 office buildings – Zenith and Voyager – are seeing pre-commitments of 82-98% and should head towards full occupancy soon. Looking ahead, we expect stronger earnings growth as tenants complete their fit-outs in the ensuing months. In addition, we look forward to the impending completion of the two planned operating buildings at aVance Business Hub by March 12. All these point towards a stronger start to FY13. Post acquisition, gearing is estimated to head towards 29%, still comfortable in our view.

Recommendation

BUY with S$0.87 TP based on DDM. While management continues to execute strongly, the strong S$ continues to undermine its ‘true operating performance’. The recent strengthening of the INR-S$, if sustained, should be a bright spot for 4Q results. a-itrust offers attractive FY12-13F prospective yields of 9.5-9.8%.

Ascendas India Trust posts 13% drop in Q3 DPU

Earnings hit as Sing dollar appreciates against Indian rupee

ASCENDAS India Trust (a-iTrust) said yesterday that its distribution per unit (DPU) for the third quarter ended Dec 31, 2011, fell 13 per cent to 1.50 cents from 1.72 cents a year ago.

Unitholders’ distribution fell 12 per cent year on year to $11.61 million from $13.16 million due to a stronger Singapore dollar, which appreciated 16 per cent against the Indian rupee in the period.

Total property income for the quarter rose 2.4 per cent year on year to $30.63 million from $29.91 million.

However, in Indian rupee terms, total property income grew 19 per cent to 1.225 billion rupees, boosted by income contributions from three new buildings.

Net property income rose 2.7 per cent to $17.46 million from $17 million a year ago, while in rupee terms, it surged 19 per cent to 698.4 million rupees over the corresponding period.

Year-to-date total property income rose 3 per cent to $93.25 million from $90.40 million a year ago. However, net property income fell one per cent to $53.64 million from $54.14 million the previous year.

Unitholders’ distribution for the three quarters slipped 10 per cent year on year to $34.85 million.

Total DPU for the first nine months was 4.54 cents, representing a yield of 8.8 per cent on an annualised basis over the closing price of 69 cents on Dec 31, 2011.

a-iTrust said its portfolio occupancy as at Dec 31, 2011, compares favourably with that at surrounding micro-markets, at 96 per cent, excluding its new buildings.

The three new buildings – Zenith, Park Square and Voyager – continued to see strong take-up with tenancy commitment levels hitting 98 per cent, 87 per cent and 82 per cent, respectively.

In addition to income contribution from the healthy demand for its new buildings, a-iTrust said it was working to complete the acquisition of aVance Business Hub in Hyderabad.

Strong S$ continues to undermine true Performance

At a Glance

• 2Q12 results an improvement but strong S$ erodes performance

• Stronger growth from 2H12

• Maintain BUY, TP adjusted to S$0.98

Comment on Results

2Q12 an improvement, but strong S$ continues to erode performance. Ascendas India Trust’s (a-itrust) operational performance in INR terms remains robust, with topline growing by 17% y-o-y. However, the strong S$-INR, which appreciated 10% since a year ago, led to reported topline growth of only 6% to S$31.4m, mainly from the rental income from their new buildings (Zenith and Voyager) which are still ramping up. Net property income (NPI) of S$18.4m grew by a lower 2% y-o-y, due to an increased portfolio size offset by higher electricity tariff & fuel costs. Distributable income however shrank by 9% y-o-y to S$11.8m, from a stronger S$ and higher interest costs from financing of its development activities, translating to a DPU of 1.54 Scts. Compared to 1Q12, results improved with DPU 3% higher. 1H12 performance formed 45% of our full year forecasts.

Development projects, completion of Hi-Tech City acquisition to underpin a stronger 2H12 performance. While performance fell short of our expectations YTD, we see strong earnings growth potential in the coming quarters with (i) strong take-up at Zenith, Park Square ad Voyager, with YTD occupancies of close to 79-83% but these have yet to fully contribute to earnings as tenants are undergoing fit-outs; and (ii) the expected completion of the acquisition of 2 operating buildings at aVance Business Hub by end of 2011.

Recommendation

BUY with revised TP of S$0.98. We have trimmed our FY12-13 numbers by 4% to 6% and lowered our TP by 7% in view of the stronger S$ and later than expected contribution from its new buildings. While a strong S$ continues to remain a drag on earnings in the near term, a-itrust ‘s has plenty of opportunities to grow, apart from acquisition and development plans already in place. Earnings upside hinges on its execution of acquisition & development pipelines – from both 3rd parties and its sponsor, which we have not factored in.