Ascendas India Trust (SGX: CY6U) is an India-focused trust that has a portfolio of seven IT Parks and six operating warehouses. As of 31 March 2019, its portfolio comprises 12.6 million square feet of completed properties and holds land with the potential built-up area of 7.1 million square feet, giving it the potential for higher rental income.
Ascendas India Trust recently released its results for the fourth quarter of its financial year ended 31 March. Here are the four main takeaways for investors.
Full-year distribution per unit spikes
The full-year and fourth-quarter results are highlighted in the table below:
Source: Author’s compilation of data from the earnings report
Ascendas India Trust collects its rent in Indian rupees but pays out unitholders in Singapore dollars. As such, a depreciation in the Indian rupee against the Singapore dollar will have an impact on earnings.
In the full year, on average, the Indian rupee fell 8.5% against the Singapore dollar, which had a negative impact on Singapore dollar-denominated results. Nevertheless, the trust still managed higher net property income due to cost savings through the disposal of a dedicated power plant in International Tech Park Bangalore, one of its IT parks.
Because of the cost savings, net property income increased despite the lower total property income.
Income available for distribution also shot up partially because of interest income earned from its investments to fund development projects at some of its IT parks.
However, distribution per unit only increased 20% in the full year due to the enlarged unit base following a private placement done in February 2018. The proceeds of that equity-raising round were used to repay the bridging loan drawn down to finance the acquisition of the operating warehouses in November 2017.
Stable balance sheet and growing book value
Ascendas India Trust has a relatively low gearing ratio of 31% and has hedged 77% of its debt on fixed rates. It has an interest cover of 4.0 times. The interest cover is a measurement of how easily the trust can use its earnings to pay off its interest expense. In my view, a ratio of five is usually safe, so Ascendas India Trust’s number is slightly on the low side. This is because its cost of debt is quite high, at 6.0%, thanks to the trust hedging its debt with cross-currency swaps and derivatives. On the bright side, its higher fixed rate and hedges should provide stability in its cost of debt.
Another major positive is the positive revaluation of its assets. In the full year, its portfolio was revalued upwards by 10.2% in Singapore dollars, giving it a total portfolio value of S$1.9 billion.
A stable portfolio
Ascendas India Trust has a stable portfolio that is well-spread across five major cities in India. There is also low concentration risk, with its largest tenant accounting for 7% of its portfolio base.
Committed portfolio occupancy stood at 99% as of 31 March 2019. The chart below shows the lease expiry profile of the trust.
Source: Ascendas India Trust Earnings Presentation
Only 9% of the trust’s leases expire in this financial year, and the weighted average lease expiry is fairly long at 4.2 years.
Potential for growth
As mentioned earlier, besides its current built-up space, Ascendas India Trust has plenty of land that can be developed.
At International Tech Park Bangalore, the trust expects completion of MTB 4 by the first half of this year and has already started construction of MTB 5.
It is also in the process of redeveloping the V, another IT park in its portfolio. Construction for phase I of the redevelopment is already underway and is expected to be completed by 2021.
Another source of rental income growth is from acquisitions. In May 2018, Ascendas India Trust has already signed a master agreement to acquire five future buildings at aVance Business Hub 2, Hyderabad. It also entered into a forward purchase agreement for the first two buildings. In addition, Ascendas India Trust will acquire two properties at another one of its IT parks, Aurum IT SEZ.
In total, Ascendas India Trust’s floor area will grow by 61% after the completion of acquisitions, developments, and redevelopments.
Source: Ascendas India Trust Earnings Presentation
Foolish last words
It was another hectic year for Ascendas India Trust. The India-focused business trust managed to deliver strong growth in net property income and DPU despite the weakening Indian rupee. It is also in the midst of major redevelopments and development projects that could increase its portfolio leasable area.
Depending on how the projects are financed, the new developments and acquisitions could be a boost to DPU in the coming years. With its low gearing, there is also some room for the trust to take on more debt in the future. At the time of writing, units of Ascendas India Trust trade at S$1.25 each. This translates to a price-to-book ratio of 1.22 and a distribution yield of 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 Jeremy Chia doesn't own shares in any companies mentioned.