Following its listing in 2007, CapitaLand India Trust CY6U (CLINT) remains the Singapore Exchange S68 ’s most liquid proxy for investing in India. As at mid-August this year, it has delivered a dividend yield of 6.7% and total shareholder return since listing of 6.3%. Its portfolio has grown more than five times to a total completed floor area of 21.8 million sq ft.
As a business trust, CLINT has two prerogatives, delivering stable distributions per unit (DPU), and DPU growth.
“We are a business trust. The reason we are structured this way is to provide both stable income and growth as compared to REITs, which largely focus on stable income. Therefore, we are duty-bound to target both stabilised income and development gains without taking too much risk,” explains Gauri Shankar Nagabhushanam, CEO of CLINT’s trustee-manager.
Gauri Shankar became CEO of CLINT’s trustee-manager on Aug 1, and he is familiar both with Singapore’s governance structures and its capital markets, and CLINT’s portfolio.
“I was handling India private funds for Ascendas-Singbridge before the merger with CapitaLand. Then, I was seconded to set up the logistics platform in India. I was the head of investments and CFO for that platform for about five years, during which we were able to set up the operations, launch two funds and fully commit the first fund as well,” Gauri Shankar recounts.
In 2022, he was made CEO of the India business park operations. “That gives me very good familiarity at the asset level, which I want to leverage because that would help to optimise costs and improve the bottomline,” Gauri Shankar says.
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CLINT’s secret sauce
The most remarkable achievement of the trust is how it has grown its net property income (NPI) and DPU, offsetting the decline in the Indian rupee (INR). Based on CLINT’s 1H FY2024 presentation, since its IPO, DPU has grown by 11% despite a decline in the INR versus the Singapore dollar (SGD) by 57% during the same period.
Gauri Shankar outlines three strategies — forward purchase arrangements, forex hedging to account for the depreciation of the INR to the SGD, and rental escalations.
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In a forward purchase arrangement, CLINT’s trustee-manager enters into an agreement with a developer who has access to the land and the development permits. CLINT then funds the construction cost and agrees to acquire the property upon stabilisation based on a pre-agreed formula.
“We fund the construction through a debt instrument and get a very good interest income on our funding. The interest accrued on the loan gets deducted and we top up the balance purchase consideration when we acquire the property,” Gauri Shankar describes.
When asked about yield-on-cost, he points out that CLINT has two types of yield-on-cost. When CLINT develops greenfield properties on their own, yield-on-cost is in the low to mid-teens returns.
On the forward purchase, the returns very much depend on the property’s occupancy at the time of acquisition. If the property is fully leased, the acquisition cost is at about 10% to 15% discount to fair market value. If the property is 50% to 70% leased, yield-on-cost would change based on the price at which the balance area gets leased at.
As an example, Gauri Shankar cites CLINT’s recent completion of a forward purchase agreement of Building Q2, a 0.82 million sq ft multi-tenanted IT Non-Special Economic Zone office building at Aurum Q Parc business park in Navi Mumbai. CLINT already owns Aurum Q1.
Q2 was a follow-on acquisition from the same developer, Aurum Real Estate. “It was through a forward purchase contract where we funded the construction cost for the developer and we assisted on the leasing front as well,” he says. “On the date of acquisition, in July 2024, the building was fully leased and we acquired it at a significant discount to fair market value.”
“Even if the property is not fully leased, we have strong leasing teams on the ground who can lease the balance and that becomes accretive for our unitholders,” Gauri Shankar adds.
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The other part of staying ahead of the INR-SGD conundrum is capital management. Currency hedges are used to minimise the impact of depreciation of the INR to the SGD and give consistency of cash flows for CLINT unitholders.
The third part is organic, and part of managing the portfolio. According to Gauri Shankar, most rental contracts in India have rental escalations of 4% to 5%. “If you look at the dollar amount in the last 10 to 11 years, the SGD has appreciated at about 3% a year. The rental escalation offsets the impact of this depreciation,” he explains.
He adds that the trustee-manager has been very prudent with its acquisitions. “We always ensure that when we acquire an asset, we are paying less than what would be its fair market value, and the forward purchase arrangements have helped us achieve this goal.”
As for the choice between pushing rents or occupancy, it is really on a case-by-case basis. “If a property is 96% occupied, I would be tempted to increase rents because that can ensure [better] rental reversions for older leases. But if the property is at 50% occupancy, then pushing the occupancy serves the unitholders better,” Gauri Shankar says.
Data centre strategy
CLINT’s expansion into data centres is recent with the first data centre to be ready by 2025. The trust is developing four data centres in India, in the key data centre markets of Navi Mumbai, Hyderabad, Chennai and Bangalore. The phase 1 building in Mumbai with a capacity of 34MW is nearing completion.
“We have vertically integrated capabilities in data centre design, development, sales and operations, providing us with a distinct advantage. As a co-location service provider, we build the core and shell, and install and service the MEP [mechanical, electrical and plumbing infrastructure] that runs the data centre. We maintain safe and secure premises so that hyperscalers, cloud and enterprises can install their hardware and software within the data halls and run their operations with minimal latency,” Gauri Shankar says.
Tenants, be they hyperscalers, cloud or enterprises, provide their hardware and software within the data centres. “Our share of the overall capex of a data centre is around 25% to 30% and the balance 70% to 75% is by the tenant,” Gauri Shankar says.
CLINT’s data centre development is in more advanced stages in Mumbai and Hyderabad. Piling work has started in Chennai. The approvals have only just come in for Bangalore. “The first two core and shell buildings in Navi Mumbai and Hyderabad are nearing completion. However, from a capital management perspective, we are staggering the investment for the installation of the MEP in a phased manner. MEP installation will be done floor wise, in line with the take-up of the space by a potential tenant,” Gauri Shankar says. “We are in discussions with a few prospective hyperscaler and enterprise tenants and hope to sign them on by the end of the year.”
Indian tailwind
Geo-political tensions between the US and China have resulted in multinational corporations looking to diversify supply chains by “friend-shoring” or onshoring back home. Asean has been a recipient of foreign direct investment as a result of these changes, but only India, due to its size and young and highly educated workforce, has significantly benefitted, market observers say.
CLINT has been a direct beneficiary of this, such as its industrial facility in Mahindra World City in Chennai being leased to Pegatron, who use the facility to manufacture and export the latest iPhones across the globe.
The Indian government has invested heavily in building digital infrastructure to serve its 1.4 billion population (it has overtaken China).
The increase in digital consumption is expected to significantly benefit the data centre business in India.
Will this rush to build data centres create an oversupply? “After the initial rush where people rushed in to block the land and build the core and shell, expectations have mellowed down. Very few players have the capability to bet on the future specifications, incur the high capex and invest in a highly specialised operations team to provide ongoing co-location service support. These act as natural barriers for new entrants,” Gauri Shankar says.
With its strong foundation in India, CLINT is well-placed to capitalise on the nation’s growth trajectory. CLINT has a long-term growth strategy which includes expanding via development, third-party acquisitions and potential acquisitions from its sponsor CapitaLand. CapitaLand is celebrating 30 years in India this year. “India is a core market for CapitaLand. Smart moves made when we first entered the country are coming to fruition now and we will be celebrating 30 years in India with our fantastic team on the ground across all the three verticals CLINT invests in — business parks, logistics and data centres. Investors are more focused on India now and we are able to leverage the interest and show them the opportunities which they can invest in,” Gauri Shankar concludes.
Diversified portfolio with strong growth pipeline
CLINT has a diversified portfolio of quality assets comprising 10 IT parks, three industrial facilities, a logistics park and four data centres. As at end-June 2024, its portfolio has a high occupancy of 96%.
Of the 10 IT parks, three are in Hyderabad, three in Pune, two in Chennai, one in Bangalore and one in Mumbai. The three industrial facilities are located in Mahindra World City in Chennai. CLINT’s logistics portfolio comprises seven operating warehouses of 1.2 million sq ft in total. Spread over 143 acres of land at the Arshiya Free Trade Warehousing Zone located at Panvel, Mumbai, it has an additional estimated future development potential of 2.5 million sq ft. Tenants include international companies like DHL Logistics and Ginlong Technologies. In addition to four data centres under development in Navi Mumbai, Hyderabad, Chennai and Bangalore, CLINT commissioned its first solar plant in Tamil Nadu in early 2024 as part of its commitment to sustainability.
Geographically, CLINT has a presence in the main commercial centres of India: Hyderabad (28%), Bangalore (27%), Pune (19%), Chennai (18%) and Mumbai (8%). According to CLINT’s 1HFY2024 results presentation, the lion’s share of rental income is from its IT parks, with the remaining 8% of base rent from warehouses and industrial (5% is from Arshiya Warehouse in Mumbai and 3% from Pegatron). CLINT has a committed pipeline that is set to grow 39% to 30.2 million sq ft as it remains focused on building on its strong operating performance, being disciplined in capital management and creating sustainable value for its unitholders.
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