Ascendas India Trust‘s (SGX: CY6U) share price (technically known as unit price for REITs and property trusts) is S$1.17 at the time of writing.
At that unit price, Ascendas India Trust is valued at a price-to-book (PB) ratio of 1.1 and has a distribution yield of 7%.
Would I buy the trust at its current price and valuation?
Let’s investigate using my 10-step guide to pick the best Singapore REITs.
As a summary, here are the 10 steps I use to pick the best Singapore REITs:
- Growth in Gross Revenue and Net Property Income
- Growth in Distribution Per Unit
- Property Yield of Between 5% and 9%
- Gearing Ratio of Below 40%
- Interest Coverage Ratio of Above 5x
- Healthy Portfolio Occupancy Rate
- Positive Rental Reversions
- Presence of Growth Prospects
- Acceptable Price-to-Book Ratio
- Distribution Yield of Above 5%
Business Background
Ascendas India Trust is a Singapore-listed property trust that owns a portfolio of seven IT parks and one logistics park in key Indian cities.
The trust is focused on capitalising on the fast-growing IT and logistics industries in India.
It aims to generate attractive portfolio returns by investing in IT parks, office properties and warehouses to provide quality and reliable business spaces.
Ascendas India Trust’s sponsor is CapitaLand Limited (SGX: C31), one of the largest diversified real estate property companies in Asia.
1. Gross Revenue and Net Property Income (NPI) Check
Check for: Increasing gross revenue and NPI
With effect from March 2019, Ascendas India Trust has a 31 December financial year-end. Previously, its financial year ended on 31 March each year.
The following table shows Ascendas India Trust’s gross revenue (the trust calls it “total property income”)
and NPI growth from FY14/15 to FY18/19:
| FY14/15 | FY15/16 | FY16/17 | FY17/18 | FY18/19 | Compound Annual Growth Rate (CAGR) | |
|---|---|---|---|---|---|---|
| Total property income (S$' million) | 129 | 144 | 157 | 188 | 182 | 9% |
| Net property income (S$' million) | 78 | 94 | 104 | 128 | 136 | 15% |
We can see that Ascendas India Trust’s total property income and NPI have grown strongly over the years, although there was a slowdown in the top-line for FY18/19.
Verdict: Pass
2. Distribution Per Unit (DPU) Check
Check for: Increasing DPU
With the increasing total property income and NPI, Ascendas India Trust’s DPU has climbed over the years too, even after accounting for the depreciating Indian rupee against the Singapore dollar.
| FY14/15 | FY15/16 | FY16/17 | FY17/18 | FY18/19 | CAGR | |
|---|---|---|---|---|---|---|
| Distribution per unit (Singapore cents) | 4.86 | 5.50 | 5.69 | 6.10 | 7.33 | 11% |
Verdict: Pass
3. Property Yield Check
Check for: Property yield of between 5% and 9%
For FY18/19, Ascendas India Trust had an NPI of S$135.7 million and a portfolio value of S$1.92 billion. This translates to a property yield of 7.1%, which is well within my range.
Verdict: Pass
4. Gearing Ratio Check
Check for: Gearing ratio below 40%
As of 31 December 2019, Ascendas India Trust’s gearing ratio was 28%, well below its internal threshold of 45%.
Ascendas India Trust, as a business trust, doesn’t have a regulation-stipulated gearing limit. Still, it has voluntarily adopted the gearing restriction of 45% imposed on Singapore REITs by the Monetary Authority of Singapore (MAS).
Verdict: Pass
5. Interest Coverage Ratio Check
Check for: Interest coverage ratio above 5 times
Ascendas India Trust’s interest coverage ratio was low at 3.7 times for FY18/19 and 3.2 times for the nine months ended 31 December 2019 (FY2019).
Verdict: Fail
6. Portfolio Occupancy Rate Check
Check for: Healthy portfolio occupancy rate
Ascendas India Trust’s portfolio is almost fully occupied, as of end-2019.
The occupancy rates of the individual properties are also higher than the occupancy rates at the surrounding areas of the buildings.
Verdict: Pass
7. Rental Reversion Check
Check for: Positive rental reversions
In its FY18/19 annual report, Ascendas India Trust gave some insights into its rental reversion performance:
“In FY18/19, we saw positive rental reversions across our properties in Bangalore, Chennai and Hyderabad on the back of healthy demand for quality office space in our micro-markets.”
It also said in its latest FY2019 earnings that positive rental reversions helped increase its total property income.
Verdict: Pass
8. Growth Prospects Check
India is one of the fastest-growing economies in the world.
The country could go on to do well in the years ahead due to its rapid urbanisation, a rising middle class, and increasing consumption.
The economic growth bodes well for Ascendas India Trust over the long-term.
Since its initial public offering in 2007, the trust’s portfolio floor area has grown at an annualised growth rate of 11%, from 3.6 million square feet to 13.1 million square feet at the end of 2019.
In the years ahead, Ascendas India Trust can grow further by acquiring assets from its sponsor and from third-parties, especially so with its low gearing ratio.
Ascendas India Trust’s portfolio floor area has room to increase to 22.6 million square feet, up 73% from that of December 2019.
Verdict: Pass
9. Price-to-Book Ratio Check
Check for: Acceptable price-to-book ratio
At Ascendas India Trust’s unit price of S$1.17, it is valued at a PB ratio of 1.1x.
Over the past five years, its average PB ratio stood at around 1.4x.
Given its current PB ratio is below that of the average, Ascendas India Trust looks undervalued at the moment.
Verdict: Pass
10. Distribution Yield Check
Check for: Distribution yield to be above 5%
At Ascendas India Trust’s unit price of S$1.17, it has a distribution yield of 7%, which meets my criterion.
Verdict: Pass
The Final Verdict
Ascendas India Trust has a final score of 9/10.
The REIT looks interesting with its:
- Historical growth in total property income, NPI and DPU;
- Low gearing ratio;
- High property yield;
- Strong portfolio occupancy rate;
- Decent tailwinds for growth; and
- Low valuation.
I wouldn’t mind buying Ascendas India Trust units with a portfolio weighting of 2% to diversify my portfolio.
Would You Invest In Ascendas India Trust?
Come discuss your thoughts and more in our Seedly Community under a page specifically dedicated to Ascendas India Trust (SGX: CY6U).
Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock.
