Facing headwinds

Ascendas India Trust (AiT) delivered a 3Q09 DPU of 2.02 Scts on the back of continued strong portfolio performance. Looking ahead, AiT faces a deteriorating business environment, which could translate to softer demand for space at its various IT tech parks. As such, we maintain HOLD, TP $0.53 based on DDM. AiT current trades at a FY09-11 yield of c. 12-15%

Results in line. AiT’s 3Q09 gross revenues and net property income continued to remain firm at S$28.7m and S$17.0 m respectively (+ 7% yoy and + 9% yoy), backed by continued strong portfolio occupancies and contributions from The Crest and Vega. Net profit, however, was slightly ahead at S$15.5m, due to a slower than expected drawdown of their construction loan. As a result, distributable income was also slightly ahead at S$15.3m for 3Q08 (+36% y-o-y, 10% q-o-q), translating to a DPU of 2.02 Scts for the quarter. NAV currently stands at S$0.99 with a gearing ratio of 9%.

Outlook remains challenging. While portfolio occupancies have remained stable at c.98% till date, we anticipate demand for IT outsourcing services to weaken on the back of new supply and down-sizing activities at various MNCs, which form a major proportion of AiT’s tenant base. We estimate occupancy levels to decline 5- 10% over FY09-10.

Moderating DPU estimates. We lower FY10 DPU estimate by c.9% to take into account (i) increased vacancies (5%-10%) at the various tech parks, (ii) lower SGD-INR exchange rates (assumed @ 1SGD=30 INR) due to expiry of currency forward in March’09, offset by (iii) earning contributions from completing buildings from FY11 onwards compared to FY10-11 previously.

a-iTrust expanding tech park in Chennai

ASCENDAS India Trust (a-iTrust) is embarking on a $62.7 million expansion of its IT park in Chennai to meet demand for business space in the Indian city. Construction at the International Tech Park Chennai (ITPC) will begin this month and could be completed in early 2010, adding 802,000 sq ft of new business space.

a-iTrust expects the expansion to be yield accretive for unitholders. According to the trust, even though marketing has not begun, there are already indications of interest for 30 per cent of the new space from existing clients looking to grow their operations.

‘We expect the leasing of the new space to progress well,’ said Jonathan Yap, chief executive of Ascendas Property Fund Trustee, the trustee-manager of a-iTrust. Overall occupancy at the ITPC was 96 per cent as at Sept 30, with 1.26 million sq ft of business space taken up. Office space achieved full occupancy.

a-iTrust will fund the total development cost of $62.7 million by debt. This will raise its gearing from 5 per cent as at Sept 30 to 11 per cent. Units of a-iTrust gained two cents to end trading at 48 cents yesterday.

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.

a-iTrust reports $13.8m Q2 distributable income

BUSINESS space trust Ascendas India Trust (a-iTrust) yesterday reported distributable income of $13.8 million for the second quarter ended Sept 30, 2008 – 24 per cent higher than a year ago.

This translates to a distribution per unit (DPU) of 1.82 cents, 23 per cent more than for the corresponding period last year. The DPU for the first half of the year stands at 3.47 cents, and represents an annualised yield of 13.2 per cent when seen against a-iTrust’s closing unit price of 52.5 cents on Sept 30.

‘Our high-quality IT parks, serving our target market of largely multinational corporations which appreciate the quality of the environment, services and lifestyle within our parks, continue to enjoy rental growth, high occupancy and a stable income stream,’ said Jonathan Yap, CEO of a-iTrust trustee-manager Ascendas Property Fund Trustee.

a-iTrust’s portfolio of completed space across the Indian cities of Bangalore, Chennai and Hyderabad, amounting to 4.8 million square feet, was 98 per cent occupied as at Sept 30. Less than 18 per cent of space is due for renewal in the current financial year.

In the first half of the financial year, 0.6 million sq ft of space was leased or renewed at higher average rental rates.

With economic and financial headwinds sweeping across the world, Mr Yap believes that a-iTrust’s target tenants will continue to find India’s cost competitiveness and large market attractive. According to the trust, the economic slowdown could encourage the offshoring of operations to India. Tighter credit conditions could even work in its favour by reducing the new supply of space in the market.

As for financing, ‘I don’t see a very big concern on that front,’ Mr Yap told BT. a-iTrust raised around $550 million when it was listed in August last year. Its gearing as at Sept 30 was 5 per cent. It also had cash and cash equivalents of $42 million, exceeding the $20 million of borrowings payable within a year.

In fact, banks looking to diversify their loan books could consider a-iTrust, said Mr Yap. ‘If lenders want a bit of Indian exposure, we do believe that the trust represents a relatively safe way for them to do that, (because) it is regulated by Singapore law and the portfolio in India is very established.’

a-iTrust’s units ended trading 3.5 cents higher yesterday at 46 cents.

a-iTrust buys India office space

ASCENDAS India Trust (a-iTrust) will buy 96,051 square feet of office space at India’s International Tech Park Bangalore (ITPB) for 307.8 million rupees (S$10 million).

The space, now owned by Tata Consultancy Services (TCS), will be leased back to TCS.

a-iTrust already owns 1.7 million-sq ft of space at ITPB through its Indian special-purpose vehicle International Technology Park Ltd (ITPL). Jonathan Yap, chief executive officer of the trustee-manager of a-iTrust, said: ‘As one of the four IT parks we own, ITPB has been delivering good and steady returns. Current occupancy is 100 per cent, and we continue to experience demand for space from existing and new clients.’

a-iTrust said that the office purchase is part of an agreement under which ITPL would construct and sell TCS a custom-built facility at ITPB, while TCS would, in return, sell office units at the park to ITPL.

The 515,000-sq ft custom-built facility has been completed and handed over to TCS.

The office space will be yield-accretive. The pro forma financial effect on a-iTrust’s distribution per unit (DPU) for the financial year ended March 31, 2008, is expected to be an additional 0.088 cents.

a-iTrust said the acquisition will be funded by drawing down an existing loan facility. a-iTrust’s gearing will be 5 per cent.

Upon completion of the acquisition, a-iTrust will own $1 billion of assets, comprising 4.8 million sq ft of income-producing space plus land for the development of 4.2 million sq ft of space.

Mr Yap said: ‘We will continue to focus on enhancing returns to unitholders through organic growth, developing land owned by a-iTrust, and acquisitions.’