Development projects complete

• Stable 3Q11 results

• Completion of Zenith and Park Square mall to underpin earnings growth

• Upgrade to BUY with S$1.08 TP based on DDM, offering total return of 20%

DPU of 1.72 Scts in line. Gross revenues held steady at S$29.9m, dampened slightly by a stronger S$/INR rate (underlying performance in INR was up 4% yoy). Net property income declined by 12% yoy due to higher utilities expenses resulting from an increase in electricity tariffs at ITPB. The manager expects to be able to pass on the increase to tenants in subsequent quarters, which should lead to operating margins returning to normalised levels. Portfolio occupancy remained high at 98%, even in the face of rising supply, highlighting a-itrust’s superior standing among tenants. Distributable income declined by a lower 7% to S$13.2m, largely due to savings from lower interest payments due to lower rates.

Completion of Zenith (located in ITPC) and Park Square Retail Mall (ITPB) to underpin future earnings growth. Both assets increased a-itrust’s SBA (“Super built-up area) by 1.1 m sqft or 25% to 5.9m sqft. Pre-commitments for Zenith and Park Square Retail Mall are progressing well at 28% and 49% respectively. Tenants should be undergoing fit-outs over the next couple of months and occupancy should ramp up in the coming quarters. We expect contribution from these 2 assets to start from FY12. In addition, its 3rd development asset – Voyager (located in ITPB, currently 29% pre-leased) – should be completed by mid 2011 (or 1Q12) and is expected to contribute positively to earnings.

Upgrade to BUY, S$1.08 TP offers 20% total return. Stock has declined 8% since our downgrade and is worth a re-look at current levels. a-itrust offers attractive forward yields of 8.3-9.0%, which are 230-300 bps above the Sreit sector average. Gearing of 12% as of 3Q11 also implies ample headroom for opportunistic acquisitions, which are currently not factored in our forecasts.

Hit by stronger S$ exchange

• Stable 2H10 outlook

• Development projects on track; pre-leasing activities slightly behind schedule in our view

• Downgrade to HOLD given limited upside to S$1.08 TP

2Q11 DPU of 1.70 Scts in line. Topline and net property income (“NPI”) were in line with expectations at S$29.6m (-3% yoy, -4% qoq) and S$18.2m (-5%yoy,-4% qoq) respectively; the declines due to a stronger S$:Rp exchange rate. As such, distributable income came in 8% lower at S$13.2m, translating to a DPU of 1.70Scts.

2H10 outlook is stable. Earnings in Rp remained stable with rental revenues inching upwards but offset by lower maintenance and operations income. A further 19% of its space is to be renewed in 2HFY11. While its operations in Bangalore and Hyderabad are expected to continue to see positive reversions, they are expecting to see moderate pressure in Chennai (ITPC) given the large competing supply situation there. As such, we moderate our rental growth assumptions from +2% to flat in 2H10, resulting in a slight reduction in our forward estimates.

1.7m sqft of development projects on track, pre-leasing activities slight behind schedule, in our view. 2 out of 3 buildings (Zenith in ITPC & Park Square Retail Mall in ITPB, +1.19m sq ft) will be completing soon. Pre-commitments are at 20% and 47% respectively, slightly slow for Zenith in our view. Negotiations are on-going and we remain confident that a-itrust will be able to fill the remaining space in the coming quarters. However, the slower than expected take-up will mean that earnings growth from these completions will likely be felt only from 2H FY12.

Downgrade to HOLD, TP S$1.08. While we like a-itrust as a premier space provider in India, we see limited upside to our price objective from current levels. As such, we downgrade to HOLD. Aitrust offers FY11-12F yields of c 6.7-7.7%.

Upside surprise. Upside surprise will hinge on acquisitions that the trust could undertake given its low gearing of 22%, which is not factored in our estimates.

Operationally stable

• DPU of 1.66 Scts (-19% yoy, -7% qoq)

• Operationally stable, development pipeline on track

• Lowered DPU estimates by 9-3% due to weaker Rs/S$ forex assumptions

• Maintain BUY with lowered TP of S$1.06 offers total return of 17%.

DPU of 1.66 Scts (-19% yoy. –7%qoq). Ascendas India Trust (a-itrust) reported steady performance with topline and NPI up 4% and 3% to S$30.9m and S$18.9m respectively. Distributable income was 19% lower yoy due to a one-off realized gain of S$4.1m a year ago vs a loss of S$0.7m in the current quarter.

Operationally stable, development pipeline on track. Occupancy remained stable at 97% while its 200,000 sqft of space were renewed at flat rates in the current quarter. Development pipeline remains on track for completion by the end of 2010 – Zenith (ITPC) and Park Square Mall (ITPB) expected to contribute 1.2m sqft of space (25%) earliest in 4Q11. Takeups are understood to be <20% currently but to pick up progressively as the building completes.

Adjusting estimates. We moderated our rental assumptions slightly for FY11 and reduce our INR-S$ assumptions from Rs32.5/S$ to Rs34/S$ in view of current hedging levels done for Nov’10 distributions. We keep our longer-term rates at Rs33.5/S$ in line with DBS Bank economists’ forecasts.

BUY, TP lowered to S$1.06 but still offers total return of 17%. A-itrust continues to offer a strong DPU growth of 13% with the completion of its development pipeline by yearend. Potential acquisitions could present upside earnings surprise. Key risks will lie on the forex fluctuations as its operations are based in India, while paying dividends in S$.

Reasons to stay invested

• Consistently strong performance
• Earnings spike to come in FY11 post completion of 2 of its new buildings
• Buy for growing yields, TP S$1.17

Stable operations. Gross revenues came in line with expectations at S$29.9m (+4% yoy, -2% yoy), contributed by higher rents, increase in energy billings from ITPB power plant, higher maintenance fees at ITPC and new contributions from a new multi-level car park in ITPB. Net property income (NPI) came in at S$19.3m (+13% yoy, +1% qoq), lifted by savings from successful cost management initiatives instituted in 2Q10. Distributable income came in at S$14.1m (-8% yoy, 0% qoq) translated to a DPU of 1.85 Scts.

Sustained occupancies, upside from development projects. Looking into FY11, a-itrust will be renewing c35% of its space, most of which are from the Vega and the Crest. Given that this is the first renewal cycle, we believe that tenants should remain at their existing locations. In addition, we look forward to a-itrust taking delivery of 2 out of 3 development projects in the later part of FY11, which will lead to positive earnings growth.

Adjusting INR assumptions. The strengthening of INR vs S$ exchange rates means that future hedges are likely to be in a-itrust favor. Therefore, we adjust our INR vs S$ estimates to INR 33.5 to S$1, in line with our DBS currency strategist’s outlook for INR in 2010 which is similar to the rate that the trust has hedged its next distribution payment.

BUY for growth, TP S$1.17. a-itrust’s DPU CAGR of 9% over FY11-12 remains a key attraction, prospective yield of 7.9-8.5%. Upside earnings surprise will hinge on potential acquisitions given a-itrust’s strong financial leverage position. Our target is adjusted to S$1.17 from higher earnings estimates and rolling forward our valuations.

Ascendas India Trust’s Q3 distributable income falls 8%

ASCENDAS India Trust has recorded distributable income of $14.1 million for its third financial quarter ended Dec 31, 2009, down 8 per cent from a year ago.

Distribution per unit (DPU) for Q3 was 1.85 cents, also lower by 8 per cent.

Total property income for the quarter was $29.9 million, which was 4 per cent higher than the corresponding quarter last year. Net property income was $19.3 million, up 13 per cent.

The trust’s portfolio of 4.8 million sq ft of completed space is fairly evenly distributed among Bangalore, Chennai and Hyderabad. The properties house 248 tenants operating in various IT sub-sectors such as software development, business process offshoring, research and development, and data centres.

Portfolio occupancy remained high at 97 per cent as at Dec 31, 2009, while tenant retention rate over the last nine months was 79 per cent, the trust said.

Jonathan Yap, chief executive officer of Ascendas Property Fund Trustee Pte Ltd, the trustee-manager, said: ‘We are pleased to report another strong portfolio performance in the third quarter. Indicators are suggesting that an economic recovery is well underway.’ The Indian economy grew 7.9 per cent year-on-year in the quarter ended September 2009.

‘We will focus on positioning the trust to benefit from further improvements in the general operating environment,’ he said.

The trust will continue to focus on growing the operating earnings of its assets by actively managing the portfolio, optimising its capital structure, and further growing the portfolio through developing the land it owns and pursuing yield accretive acquisitions.