Ascendas India Trust - DBS Research 2022-08-02: From Strength To Strength

• Ascendas India Trust (SGX:CY6U) reported a 2% y-o-y rise in DPU to 4.28 cents, forming 51% of our full-year estimates. DPU was 19% higher compared to 2H21. This stronger performance y-o-y was on the back of an ~8% rise in revenues and net property income to S$103.3m and S$83.4m.
• The improvement was driven by income from aVance 6 in Hyderabad (acquired in Mar 21), Building Q1 in Pune (acquired in Nov 21), Arshiya Warehouse 7 (acquired in Mar 22), and the industrial facility in Mahindra World City (May 22). This was supported by higher utility and carpark income compared to a year ago, as park capacity increased to ~36% (Jun 22) compared to just 1% a year ago.
• Income available for distribution rose by a smaller portion of ~4% y-o-y, partially offset by higher interest costs from acquisitions and lower interest income on the conversion of several forward contracts to rental income.
• Ascendas India Trust's gearing remained steady with a ratio of ~35%. All-in cost of debt increased to 5.6% (as of Jun 22), from 5.4% (Mar 22), with 79% of its interest costs hedged at fixed rates with 62% of its borrowings hedged in Indian rupees. Interest coverage remained steady at 3.4x. Assuming a 1% rise in interest costs, the impact on DPU is projected to be -2.2%.

Ascendas India Trust - Outlook and commentary

ITPC occupancy rates; committed occupancy seeing strong commitment

• Overall portfolio occupancy rates improved to ~90% (compared to ~87%) a quarter ago. The improvement mainly comes from ITPC, which saw the asset’s committed occupancy rates jumping to ~83% (improved to ~87% post quarter end).
• We understand that tenants are doing fit-outs and should start to contribute to revenues more meaningfully in 2H22. The manager is continuing to see good enquiry levels for the remaining space and could see committed occupancy rates for ITPC increasing close to 90% by year-end.
• Ascendas India Trust’s weighted average lease expiry (WALE) is 3.7 years. The manager has ~12% of its base rent expiring in 2022, of which 84% has been renewed or is likely to be renewed. The manager is actively engaging with replacement tenants for the spaces that will likely be returned. Overall portfolio occupancy levels are expected to improve in 2H22

/ Rental reversionary trends

• Rental reversions were largely positive, but we note negative rents seen in ITPC (-5%) and ITPH (-1%), mainly due to rent free spaces offered to tenants (existing/new) to entice them to take up spaces. If we strip out the impact of the rent free spaces, rents are, in general, 2% higher.
• Looking ahead, the manager expects rental reversions to remain positive for leases. We do note that most expiries in 2H22 are coming from Hyderabad and Bangalore, where performance (demand/supply) dynamics are in the landlord’s favour.

Development projects and acquisitions

• The manager is seeing steady progress in its development projects across the books and we should see incremental contributions in 2H22. The pipeline of forward-funding projects is expected to potentially grow its GFA by 63%.
• The total expected consideration for its pipeline properties over seven projects totaled S$924m (INR47.6bn), with the manager disbursing over S$285m (INR14.4bn) with a further commitment of S$639m (INR33.2bn) over the coming four to five years.
• The next potential acquisition from this pipeline will be BlueRide 3 Phase 1 and aVance Hyderabad (potentially sometime in 2023), as the properties are actively being leased.
• The manager will be completing a 1.36m sqft development in IT Park Hyderabad (ITPH) by end-2022. The manager expects to secure ~20%-25% occupancy rates upon completion.