DBS’s Derek Tan and Dale Lai have maintained their “buy” call and target price of $1.70 on Ascendas India Trust (a-iTrust), noting the REIT’s increased DPU and stronger performance for its 1HFY2022 ended June.
a-iTrust reported a 2% y-o-y rise in DPU to 4.28 cents, forming 51% of DBS’s full-year estimates.
Compared to 2HFY2021, DPU was 19% higher, and this was due to an approximately 8% rise in revenue and net property income to $103.3 million and $83.4 million.
See also: Ascendas India Trust reports 2% higher 1HFY2022 DPU of 4.28 cents
The improvement was driven by income from the aVance 6 building in Hyderabad, Building Q1 in Pune, Arshiya Warehouse 7, and the industrial facility in Mahindra World City. All of these properties were acquired from March 2021 to May 2022.
Besides this, the higher revenue was also supported by higher utility and car park income compared to a year ago, as park capacity increased to about 36% in June 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.
The analysts highlight that with a-iTrust projected to deliver a robust 3-year DPU compounded annual growth rate (CAGR) of 11% in FY2022-2024, yields are expected to hit over 8% in a steady state.
a-iTrust’s overall portfolio occupancy rates improved to about 90%, compared to 87% a quarter ago. The improvement mainly comes from its International Tech Park Chennai, which saw the asset’s committed occupancy rates jumping to about 83%, improving to about 87% after the quarter ended.
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“We understand that tenants are doing fit-outs and should start to contribute to revenues more meaningfully in 2HFY2022,” Lai and Tan write, adding that a-iTrust 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.
a-iTrust’s weighted average lease expiry (WALE) is 3.7 years, the analysts note, and the manager has about 12% of its base rent expiring in 2022, of which 84% has been renewed or is likely to be renewed.
Furthermore, the manager is actively engaging with replacement tenants for the spaces that will likely be returned, and as such, overall portfolio occupancy levels are expected to improve in 2HFY2022.
Lai and Tan say despite the “near-transitory” portfolio vacancies, they see management placing the foundations of future growth, as the trust is positioned as a “new economy” play with future development projects in IT parks, warehouses, and data centres.
They also point out that a-iTrust’s manager has invested in the data centre space, augmenting its position as a leading new economy player in India.
The manager has identified two more sites within its IT parks in Bangalore and Hyderabad for data center developments and targets an internal rate of return (IRR) of 11%-12% upon completion in the medium term.
Moving forward, an overall commitment of close to $1 billion over the next four to five years is expected to drive a 50% rise in assets under management (AUM).
Lai and Tan warn however, that the key risk to their bullish stance on a-iTrust is a significant depreciation of the Indian Rupee or delay in acquisitions and development projects.
As of 1.26 pm, shares of a-iTrust were trading at $1.22, with a FY2022 P/B ratio of 1 and dividend yield of 6.9%
