DBS Group Research analysts Derek Tan and Dale Lai have kept their “buy” call on CapitaLand India Trust (CLINT) at a raised target price of $1.30 from $1.15 previously, as they see robust operational statistics and a healthy pipeline of projects for the REIT.
In their April 25 report, Tan and Lai note that CLINT is among the “fastest growing S-REITs” with a projected three-year distribution per unit (DPU) compound annual growth rate (CAGR) of around 8%.
They write: “This is mainly on the back of recovering cash flows from its portfolio and planned acquisitions, ongoing developments, and forward-funding projects from within its inbuilt pipeline of projects.”
The analysts add that the recently completed acquisition of the REIT’s sponsor asset in Pune, India, and its planned developments at CyberVale and IT Park Bangalore will “anchor the robust growth” expected in its revenue-generating spaces moving forward.
CLINT’s occupancy rates have also improved 1 percentage point (ppts) q-o-q to around 94%, with management guiding for a high of 90% by end FY2024.
“We note that overall rental reversions are generally positive, in the range of 5% to 15% for most assets,” adds Tan and Lai.
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Overall, the REIT’s financial metrics remain stable with healthy gearing, inching slightly higher to around 37% following the completed acquisition of the 63% pre-leased Pune asset, with the net gearing ratio at 34.6% after accounting for around $140 million of cash or cash equivalent onshore in India, which could be deployed for other purposes.
“Over time, we remain excited about the prospects for the trust with the myriad growth initiatives in place. Over time, we see CLINT emerging as a diversified new economy play, offering exposure to information technology (IT) parks, industrial property, warehouses, and data centres,” writes the analysts.
Meanwhile, they believe that the REIT has a data centre development opportunity with a gross development value in excess of $1.0 billion, which could be de-risked through a stake-sale to a sponsor-led consortium or private fund.
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On this, although no details have been shared presently, Tan and Lai see the deal as one that could “unlock significant value” for the REIT.
They write: “The strong start of the year provided us with confidence that with the Singapore dollar to Indian rupee (SGD-INR) rates remaining stable, and aided by the strong pipeline of inorganic and organic growth drivers, CLINT would be able to deliver around 13% growth in DPU in FY2204, bringing yields north of 7%.”
Tan and Lai conclude: “This is more than 100 basis points (bps) higher than the average yield of around 6% that its Indian peers are trading at.”
Key risks noted by the pair include currency risks, given that distributions are paid in SGD while earnings are in INR, the depreciation in the foreign exchange (forex) rate could impact distributions.
As at 2.25 pm, units in CapitaLand India Trust are trading at 0.5 cents higher or 0.51% up at 99.5 cents.
