A Falling Indian Rupee Continues To Weigh On Ascendas India Trust

Ascendas India Trust (SGX: CY6U), a business trust with a strong focus on business parks in India, released its fourth quarter results yesterday. As of 31 March 2014, the trust has five Information-Technology parks in its portfolio that are – as their classification suggests – mostly exposed to the IT industry.

Lower DPU despite huge increase in property income

For the financial year ended 31 March 2014 (FY2013/14), the Indian rupee had depreciated about 9% against the Singapore dollar. This has been the main cause for a less than exciting result from the trust. In local currency terms, Ascendas India Trust’s total property income had grown by 4%, ending its financial year at Rp5.77 billion. The growth rate in the trust’s income available for distribution was even more impressive, clocking in at 17% in local currency terms at Rp 2.21 billion.

Unfortunately, due to the currency depreciation, the income available for distribution grew only 7% in Singapore dollar terms. This affected Ascendas India Trust’s distribution per unit even more as its equity base had increased due to a private placement in October 2012 (i.e. its unit count had gone up). All told, the trust’s DPU had dropped by 2%  to 4.56 Singapore cents per unit.

In rupee terms, the trust’s net property income has shown a trend of strong growth for the past seven years; it started at Rp1.65 billion in FY2007/08 and had grown to Rp3.45 billion today, representing an annual compounded growth rate of 13%. However, in terms of the Singapore dollar, the trust’s net property income only grew at 3% a year.

To add fuel to fire, the net property income – in Singapore dollar terms – has been dropping since its peak of S$73.8million in FY2009/10. This is in line with the general trend of the depreciation of the Indian rupee against the Singapore dollar.

In terms of the strength of its balance sheet, the trust has one of the lowest gearing ratios in the market at only 22%. Nonetheless, due to its geographical exposure to India, its effective cost of debt (i.e. average interest rate) is slightly higher at 6.1%.

Going forward

The trust’s manager is still very optimistic about the future. This is mainly because of India’s reputation as the global hub for the IT-outsourcing needs of international corporations. The manager is confident that there is still plenty of demand for its properties; the trust’s properties continue to have a high occupancy rate of 97% and they a high retention rate for their tenants at 94%.

The trust’s expansion plans would focus on three areas: 1) Its development pipeline where it has more than 2.9 million square feet of space to develop; 2)  possible acquisitions of its Sponsor’s real estate assets (the trust has the right of first refusal for a number of its Sponsor’s properties); and 3) third-party acquisitions.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.