Ascendas India Trust’s Latest Earnings: Slight Growth Seen with Potential for Better Days Ahead

Ascendas India Trust  (SGX: CY6U) released its fiscal third quarter earnings on Monday for its fiscal year ending 31 March 2015 (FY14/15). The reporting period is for the quarter ended 31 December 2014.

Listed in August 2007, Ascendas India Trust is Singapore’s first listed business trust with a focus on real estate located in India.

As at 31 December 2014, the trust’s portfolio consists of five Information-Technology business parks in India, namely, International Tech Park BangaloreInternational Tech Park Chennai, CyberPearlThe V, and aVance Business Hub. 

The first two business parks are aptly named for their locations in Bangalore and Chennai respectively, while the last three are all located in Hyderabad. In addition, Ascendas India Trust also holds land that has a potential built up area of another 2.9 million square feet; for some perspective, the trust’s portfolio has 7.5 million sq ft of completed properties.

Some basic numbers

For Ascendas India Trust’s fiscal third quarter, total property income grew by 6% year-on-year to INR1.52 billion on the back of new contributions from a new building (which became operational only in January 2014) and positive rental reversions in Chennai. However, net property income dipped 1% to INR905 million as a result of one-off accounting expenses.

Moving further along the trust’s income statement, income available for distribution grew by 2% to INR566 million mainly due to higher interest income. The trust has a policy to distribute at least 90% of its distributable income, and has been retaining 10% of it since April 2012 to provide greater flexibility in growing the Trust.

With Ascendas India Trust being listed in Singapore, retail investors should also be aware that the exchange rate between the Indian rupee and Singapore dollar can affect the trust’s results in the latter currency.

Fortunately for the fiscal third quarter, things look better after conversion from the rupee to the dollar due to favourable currency movements: The rupee/dollar exchange had actually decreased by 3% year-on-year to 47.8 for the fiscal third quarter.

As a result of all the dynamics described above, Ascendas India Trust’s distributions edged up 6% year-on-year in dollar-terms to S$10.7 million, while the DPU (distribution per unit) also increased by the same percentage points  to 1.16 Singapore cents.

Financial position & operational highlights

On the operations front, the trust seems to be doing a great job in retaining tenants as occupancy rates across its portfolio stands at 96%.

Meanwhile, investors might be happy to note that the trust’s weighted average lease term for its property portfolio is around 5.2 years (longer leases gives more stability to the property owner) and the retention rate for renewed leases from 1 April 2014 through to 31 Dec 2014 was 80%.

As it is with any trust or company, the gearing ratio and interest costs are important measures of financial stability.

Although Ascendas India Trust’s 23% gearing ratio (as at 31 December 2014) is commendable, its average cost of debt is on the high side at 6.5%. It’s also worth pointing out that both figures have increased compared to a year ago: As at 31 December 2013, the gearing ratio was 22% while the average cost of debt was only 6.0%. This is worth watching as higher interest expenses has the potential to ding Ascendas India Trust’s bottom-line

Furthermore, investors may also want to keep track of the expiry of the trust’s borrowings in the coming years.

Ascendas India Trust has slightly more than half its total borrowings of S$243 million coming due by FY16/17. If there’s an environment of rising interest rates, it may be tougher for the trust to refinance loans at competitive rates.

Foolish Summary & valuations

In my opinion, the recent electoral victory by India’s new Prime Minister, Narendra Modi, has marked a new era of growth for businesses in the region. The outlook of India has also changed for the better with Modi’s pro-business plans being implemented steadily. The Indian rupee has steadily weakened by a cumulative 44% against the Singapore dollar since the first quarter of 2008. But, the recent strengthening of the Indian rupee (although a modest one), may also be a sign of better times to come for India.

If the economy and business conditions in India does improve sustainably over the long-term, it can be a strong tailwind for Ascendas India Trust, provided management actually does manage the trust skillfully.

Ascendas India Trust last changed hands at S$0.89 yesterday. At that price, the trust’s units are valued at 1.48 times its book value, and carry a trailing-12-month distribution yield of almost 6.0%.

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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 James Yeo doesn’t own shares in any companies mentioned.