Monday, September 7, 2020

Ascendas India Trust

Quick look at this company.  

The Numbers

Long term, the numbers are excellent.  They have been growing.  In INR:

And DPU has grown too, meaning they did it without too much dilution:

The payout ratio has been 90% since 2013, and (I think) 100% before that.  I think it's the only SGX REIT/trust that keeps a little bit of its income for future growth.

Just to double check, lets compare the growth rates of debt, units issued and distributable income:

Most of their past growth has been funded by debt.  Their last big issue of new units was in November 2019, as a private placement.  They are still only at a 29% gearing, giving plenty of room to grow.

There is one catch: the Indian currency (INR) is constantly falling against the SGD:

Over ten years it has depreciated at a CAGR of -4.3% a year against the SGD.  Its like the INR has high inflation build into it - if you hold this currency, you are running just to stay in the same place.  AIT's growth has to outperform this depreciation.  When we look at the DPU in SGD, its still growing:

The bad performance from 2010 to 2013 was mostly due to currency.

The Properties

When I look at a REIT's property, I just look at two simple common sense things: is it freehold?  And where is it located, in the middle of a city or the middle of nowhere?

Here I look at AIT's top 4 buildings by value, and also describe their property location from google maps:

All of the property is freehold, or for long enough that it doesn't matter.  The important buildings, making up 75% of the Trust's property value are all in outlying areas that are quite built up - medium to high density, some with a little vacant land nearby.  They are what we would expect from business parks, the point here is to make sure they are not in the middle of nowhere.

Debt

The majority is due in 2022 and 2023:

Source: July 2020 Results Presentation

35% is denominated in SGD, as SGD loans have lower rates.    There's a risk here, if INR drops, the debt rises compared to the asset value.  If the SGD rises 30% against the INR in a few years - like it did in 2010 to 2013, then that 29% gearing ratio becomes 32%.

The Trust's rules specify at least 50% of debt should be in INR.

Tenants and Leases

WALE is 3.6 years:


The fine print at the bottom says the retention rate from July 2019 to June 2020 was 57%.  Pretty low.  If we assume most of those who left did so during covid (Jan onwards), the retention rate may be low till Covid is over.

There is some room for new rents to rise: each buildings' average rental is below its recently renewed rental rates:

(The numbers in red at the bottom are the percentages of each each building's property value for the trust).

They have high quality tenants:

  • 86% are MNCs
  • "Collections for office rents remain healthy with 99% of April, 95% of May and 92% of June billings collected." (slide 6)

The top 10 tenants account for 38% of rent, the top tenant accounts for 9%.

Risks

The biggest risk is "Work From Home".  In their latest update, the company says "Park population remains below 10% across all parks."  If the people in India figure out they can all work from home, less office space is required.  I believe most middle class Indians live in condominiums with a domestic helper for the children, so they should be able to WFM.

Next is the currency risk.  If we get a big INR depreciation like from 2009 to 2013.

Lastly, de-globalisation.  India is less affected than China, but the issue of outsourcing and H1B's may come to the attention of US politics.

Summary

Great long term growth, management, properties and tenants.  Manageable debt.

The currency risk is the biggest one.  No way of predicting these.  But at a yield of  over 6%, I think they are priced in.  I am wondering if I am comfortable with a 5% position or 10% position?

DPU from 1st April 2019 to Dec 2019 is 6.45c.  Annualised its 8.6c.  Thats a 6% trailing yield at $1.43 and a 7% yield at $1.23.

Misc

A good blog post that brings up some points about India's demographics, AITs Management Fee structure and currency: https://reality-inversion.blogspot.com/2019/01/ascendas-india-trust.html

A series of good posts by Snowball about competitors in the Indian commercial property marketIndian Interest rates & Lease terms, and comparison with Embassy REIT.

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