Ascendas (ACNDF.PK,
AiTrust, or AINT.SI) is a Singapore-listed real estate investment trust building and operating office
and industrial properties in India. It mostly builds office towers but does a small amount of commercial
property as well, like shopping malls for the people working in the towers.
Again it helps to know where they are at. Currently the sites are in Bangalore, India’s IT capital,
Hyderabad, and Chennai (formerly Madras). It is moving into Coimbatore, Pune (formerly Poona), and Gurgaon.
Again these are famous old rail centers, because investment follows the train.
Do not imagine that Ascendas’ tenants are merely the Indian IT companies. To be sure, it did a sale-leaseback
deal for Tata Consulting Services this summer which we reported on, freeing up cash for the Indian
IT firm to help it survive the crisis. Unlike Tata, ACNDF was able to fund the building at 70 basis points
over the swap offer rate, so that its lease will produce excellent profits.
Some 63% of the REIT’s lets are to IT companies mainly because that is where the money is in India.
But most of its tenants are global companies: GM, Pfizer, Merrill Lynch,
Applied Materials, Cognizant.
The top 10 lets account for only 29% of total area leased by Ascendas, and non accounts for more than
4% of the total. That spreads the risk even though I worry about GM.
Because its investors are in Singapore, Ascendas has hedged its repatriation flows from rupees to
Singapore dollars through to the hend of H1 2009 (a year from now more or less). It produced an income
per unit of S1.82 cents. That was up 23% from last year’s Q2, and up sequentially by 10%. At end
Sept., NAV was S$750 mn or 99 cents (Singapore)/sh.
Based on its H1 distribution, it pays off to the tune of 16.2% as of the price at which it entered the
model portfolio. So the obvious question to ask is can they keep it up?
Having been rude about Citi's Asia hands, I must admit they are right about Ascendas which they
call a buy with an attractive 15.9% yield (they wrote their piece after we had already bought in. We paid
28 cents U.S. per share and they are writing with the share 33 U.S. cents.) Citi wrote:
“In current
volatile times, we see aiTrust as a defensive Indian property play. While stock is down 42%, it's outperformed
Indian property stocks by 52% over last 3 months. Its attractive yield of 15.9% for FY09E is ahead of
peers and good support. We reiterate Buy (1M).”
(1M means best buy, moderate risk. Citi lowered its target price to S$0.79 citing currencyy risks despite
the hedging we reported above. This may be because Citi thinks the costs of hedging beyond Sept. 2009
will go up.)
For Q2, Citi analysts noted “a one-time income of S$2.7m from extra power supply. Net property income
was up 2% largely due to higher operating, and utility costs given a larger portfolio” It added:
“we expect [a] stronger 2H” from higher areas available for lets.
Citi cited some risks: like a depreciating rupee in S$ (and US$) and any global slowdown in IT demand
feeding into closing offices or bankruptcies. I think this is pretty remote. But obviously, if GM goes
bust, this will have an impact.
Note: Results and DPU for Q1 and Q2
FY 2007-8 were reported together after the listing of Ascendas, at S$ 2.95 cents. Had the DPU been equal
and hence 1.475 Singapore cents for each quarter, 2Q FY 08/09 would have been 23% higher.
*Apologies. For some reason I decided
last week that the regulator from which Galapagos N.V. gets approvals is called the Federal
Health Agency. Of course I meant the Food & Drug Administration, which moreover has different initials.
