Post NDR take-aways

• Strong S$ erodes underlying earnings growth

• Acquisition/development completions to underpin strong DPU growth profile over FY12-13F

• Maintain BUY, DDM-based TP of S$1.05

Strong S$ had an impact on an otherwise strong operational performance. While Ascendas India Trust (“a-itrust”) performance in INR terms showed growth 11% in topline in 1QFY12, the strong S$, which appreciated against the INR by 10%, eroded its reported numbers, leading to topline and net property income coming in +1% y-o-y and –7% y-o-y to S$31.2m and S$17.6m respectively. Distribution income was also 10% lower at S$11.5m (DPU of 1.5 Scts) due to additional finance expenses incurred for the development of the new buildings (Zenith, Park Square and Voyager), while rental income has yet to be fully recognized as occupancy levels are still being ramped up with a majority of tenants currently doing fit-outs. We moderate our DPU assumptions slightly to account for lower S$-INR exchange rate (1S$ : INR 35.5 from 35 previously) and delayed revenue recognition from its newly completed properties.

Acquisitions and development projects to contribute more significantly. The forward growth picture remains robust given the expected execution of its acquisition and development projects over next few years. This is projected to boost DPU by up to c11% p.a. over FY12-13F. Earnings growth is likely to be driven by: (i) 3 recently completed buildings totaling 1.7m sqft SBA (25% of its enlarged portfolio) which should be fully leased in the coming quarters; (ii) earnings from the expected completion of the acquisition of 2 operating buildings in Hi-City (renamed to aVance Business Hub); and (iii) the planned development of a 500,000 sqft multi-tenanted office development in ITPB.

Maintain BUY, S$1.05 TP. While a strong S$ will likely be a drag on earnings in the near term, we see a-itrust ‘s FY12-13F DPU CAGR of 11% as attractive, with upside risk on execution of acquisition & development pipelines – from 3rd parties and its sponsor – in order to continuing growing its portfolio size in the longer term.

Ascendas India Trust Q1 DPU down 10%

ASCENDAS India Trust (a-iTrust) yesterday posted a 10 per cent year-on-year decline in distribution per unit (DPU) from 1.66 cents to 1.50 cents for the fiscal first quarter ended June 30 – an annualised yield of about 6.4 per cent, based on yesterday’s closing unit price of 96 cents.

The decrease was attributable to the effect of a stronger Sing dollar and additional financing costs for newly completed buildings. Three buildings were recently completed and the construction financing costs were recognised in the income statement upon completion.

Although income contribution from new buildings and higher recovery of utilities cost pushed total property income up one per cent year-on-year (from $30.89 million to $31.22 million), total property expenses increased 14 per cent year-on-year from $11.95 million to $13.66 million, due to an increase in a-iTrust’s portfolio as well as higher electricity tariff and cost of fuel.

Consequently, net property income was down 7 per cent from $18.94 million in the same period the previous year to $17.56 million. But in Indian rupee terms, net property income was 2 per cent higher. The trust expects additional property expenses to be progressively compensated by higher property income in the immediate future.

Gearing at the end of the first quarter was 22 per cent. This level gives a-iTrust the flexibility to fund growth via development or acquisition using debt or equity.

a-iTrust’s portfolio of 6.4 million square feet – including Zenith, Park Square & Voyager – of completed space is fairly evenly distributed among Bangalore, Chennai and Hyderabad. Occupancy for its portfolio – excluding Zenith, Park Square & Voyager – as at June 30 was 96 per cent.

Tenant demand at its latest three developments was also strong. As at July 27, the tenancy commitment rates for Park Square, Voyager and Zenith were 76 per cent, 68 per cent and 74 per cent respectively. ‘In light of the reassuring demand for our new space, we are already in the midst of planning the development of another multi-tenanted IT SEZ building of approximately 540,000 sq ft in Bangalore’s International Tech Park,’ said Ascendas Property Fund Trustee Pte Ltd CEO Jonathan Yap.

Portfolio expansion in progress

• 4Q11 DPU of 1.5 Scts in line

• Visible development pipeline, growth likely to be backend loaded from 2H12

• Maintain BUY with TP revised to S$1.05

4Q11 DPU of 1.5 Scts in line. A strong S$ continues to “distort” actual performance of a-itrust 4Q11 again. Revenues in S$ terms grew 1% y-o-y S$31.1m (+10% in INR) while net property income fell by 3% to S$16.4m (+6% in INR). Operating expenses were higher due to an increase in portfolio size coupled with higher utilities expenses and cost of fuel. Distributable income of S$11.5m (DPU of 1.5Scts) was 16% lower y-o-y due to higher interests costs due to loans (previously capitalized) taken out to fund the construction of Zenith and Park Square. In 4Q11, a-itrust recorded a revaluation of S$1.2m, translating to an NAV of S$0.80.

Visible development pipeline, but earnings growth likely to be back-end loaded from 2H12 onwards. Portfolio occupancy levels remain stable at 97%, and portfolio rentals remain flattish with incremental earnings growth primarily driven by its development project completions and its recent acquisitions, which are expected to complete soon. Zenith and Park Square Mall added 1.2m sqft of NLA to the portfolio but have not contributed significantly to earnings in 4Q11 as it is still 42% and 61% precommitted but expected to inch up slowly in coming quarters. Moreover, tenants are currently in their rent-free periods as they are undergoing fit-outs. Commitment levels at another completing development project, Voyager (ITPB), is progressing well at 68% YTD and is expected to head towards 80% soon. This strong demand for space prompted a-itrust to begin the planning and designing of another development project within the SEZ zone in ITPB – a 540,000 sqft multi-tenanted building which is expected to complete in 2013.

BUY, TP revised to S$1.05. We adjust our DPU estimates slightly to account for delayed earnings contribution from development projects and a stronger S$-INR exchange. We believe earnings have hit a trough in 4Q11 and should see sequential growth with the completion of new buildings at Hitec City coupled with the continuous ramp up in operations at its 3 recently completed development projects

Growing presence in Hyderabad

• Proposed acquisition of portfolio of 5 buildings in Hyderabad

• Positives seen in deal; earnings accretion

• BUY Call maintained, TP adjusted to S$1.13 based on DDM

Deepens Hyderabad exposure. a-itrust proposes purchasing a portfolio of up to 5 buildings (2.2m sqft, +34% portfolio SBA) in Hyderabad, India for a total consideration of INR 8.5bn. The properties are located in an established IT Park – Hitec City 2 Special Economic Zone (“HTC2 SEZ”). The portfolio consists of two operating buildings, immediately acquired for INR 1.7bn (S$50.4m), while the remaining three are to be acquired progressively when they complete over 2012-2014. Through the vendor, a-itrust also has a right of first refusal to acquire up to another 1.16m sqft of SBA ( 4 buildings) in the future.

Positives on this deal. We are positive on this acquisition, aitrust will boost its portfolio in Hyderabad, enabling them to enjoy economies of scale, while the impact on distributions should be immediately accretive as operating buildings are currently trading at 100% occupancy, with established MNCs as tenants. We estimate initial yield to be c10% for the two operating buildings, comparing favorably against its implied yield of 8.5%. An attractive pipeline awaits a-itrust (3 pipeline acquisitions, 4 in a ROFR) , underpinning expected steady portfolio growth in the mid-longer term. We raise our earnings by c1-3% over FY12-13F, assuming a-itrust fund the acquisitions of three buildings (completed and under construction) via debt.

Growth visibility strengthens, BUY, TP S$1.13. We continue to like a-itrust for its growth trajectory. The trust offers an attractive DPU CAGR of 13% over FY11-13, underpinned by a growing portfolio. Currently offers a prospective yield of 7.3-9.3%. Maintain BUY.

Ascendas India Trust snaps up five buildings in Hyderabad

ASCENDAS India Trust (a-iTrust) announced yesterday that it will acquire five buildings in Hyderabad, India with a total built-up area of 2.2 million square feet.

Two of the buildings – which are completed and 100 per cent occupied – will be acquired for 1.74 billion rupees (S$48.8 million). The total purchase cost would be 1.77 billion rupees if transaction expenses were to be included.

The other three buildings are expected to be completed over the next four to five years. Based on estimated net property income, they will cost 6.81 billion rupees.

All five buildings are expected to be acquired from Indian property developer Phoenix Infocity Private Limited. Upon acquisition, the buildings – situated in Hitec City 2 Special Economic Zone – will be managed by Ascendas Group.

While the two completed buildings will be immediately acquired, a-iTrust said it will pay for the three other buildings as and when they are completed and leased.

The acquisition is expected to be distribution per unit accretive, with accretion from the acquisition of the two completed buildings estimated at 0.16 cents per unit in the first year, said a-iTrust. ‘Further accretion is expected from the acquisition of the remaining buildings over the next few years,’ it added.

If the acquisition is funded fully by debt, a-iTrust’s gearing will be 22 per cent after buying the two completed buildings, and 33 per cent after buying all five buildings over the next few years.

Ascendas Property Fund Trustee – the trustee-manger of a-iTrust – said it has ‘secured debt commitment from banks’.

‘We are optimistic that the demand for business space in Hyderabad will remain buoyant, supported by the city’s strong economic fundamentals and its IT sector,’ said Jonathan Yap, chief executive of Ascendas Property Fund Trustee. ‘Strong demand for business space has driven the occupancy of Hyderabad’s Grade A office space up, to 97 per cent as at Dec 31, 2010.’

The counter closed trading unchanged at 93.5 cents yesterday.