<Alert!> 1QFY22 operations turning the corner
- Operational results show a q-o-q uptick
- Positives: (i) ITPC occupancy rates continue to improve; (ii) acquisitions gain momentum and construction restarts in 1QFY22, (iii) identified more development opportunities within portfolio
- Negative: (i) aVance Hyderabad saw 6% dip in occupancy rates, (ii) reversions turning more modest
- BUY call maintained with TP of S$1.70
| 1QFY22 | 1QFY21 | % Chg | |
| Revenue | 2,765 | 2590 | 7% |
| NPI | 2,225 | 2114 | 5% |
| INR rate | 55.6 | 55 | |
| S$ | S$ | % Chg | |
| Revenue | 49.7 | 47.1 | 6% |
| NPI | 40 | 38.4 | 4% |
| Occupancy | 87% | 91% |
(+) Uptick in performance in 1QFY22.
Ascendas India Trust (“a-itrust”) revenue and net property income (“NPI) for 1QFY22 rose by 7% and 5% y-o-y respectively in INR terms to INR 2,765m and INR 2,225m. This was largely due to income from aVance 6 aVance 6 and Building Q1 which was acquired in Mar’21 and Nov’21 respectively. The trust also reported higher utilities income. NPI increased by a lower % due to higher operational costs and reversal of credit cost in 1QFY21. A 1% y-o-y depreciation of the SGD-INR FX rate meant that in SGD terms, revenues and NPI increased by c.6% and c.4% respectively.
(+) Occupancy rates stable at c.87% with higher commitment of c.89%
Portfolio occupancy rates remained stable at 87% q-o-q though we see green shoots emerging throughout the portfolio with the manager noting increasing leasing enquiries and are in active discussions to fill vacated spaces. During the quarter, the manager executed on close to 0.5m sqft of leasable area across the portfolio. IT Park physical occupancies continue to see improvement, ranging 15%-30% compared to the c.5% for the most of 2021.
Most notably, IT Park Chennai (ITPC) continues to see take-up with committed occupancy rates rising to c.71% with an additional 3.0% in advanced discussions. We saw aVance Hyderabad occupancy dip by 6% point due to a tenant decision to vacate but the manager remains optimistic that the vacancy downtime is likely to be limited given the positive metrics of the office market in Hyderabad (IT Corridor I
Apart from these two IT parks, we see fairly stable occupancy rates throughout its portfolio and noted a slight uptick in IT Park Bangalore (ITPB) which saw occupancy rates improved to c.93% (vs 91% in FY21).
(+) Reversions remain positive but are moderating
Portfolio reversions remain positive at 2.8% in 1QFY22 (ranging from 3% – 8%). We note that for leases signed with ITPC and Cybervale reversions seeing lower reversions (1% to 3%) as the manager brings down rental expectations in order to fill vacancies with potential dip in rental rates for recent short-term renewals that are above market levels. Apart from ITPC, the manager expects to see continued positive rental reversions in FY22. Looking ahead, the manager renewed c.40% of FY22 expiries and expects to see high retention rates for leases up in the coming quarters.
(+) Acquisition pipeline remain robust but completions are projected to be delayed.
The manager continues to execute on its pipeline of forward funding projects which is expected to potentially grow its GFA by 68%. Total expected consideration for its pipeline properties over 7 projects totalled S$934m (INR 48.1 billion) with the manager disbursed over S$296m (INR 15.1 billion) with a further commit of S$638m (INR 33.0 billion) over the coming 4-5 years. After the completion of AURUM IT SEZ Building 1 (AURUM Q1), we believe that the manager remains on track to acquire Arshiya Panvel 7th warehouse in 2022 (S$38m or INR 2.0 billion) and possibly Aurum Q Parc (INR 3.0billion or S$60m left) with the manager securing a 15% pre-commitment for long-term space and with more in the pipeline. The manager has also identified a possible development opportunity within ITPB.
Stock implications.
With operational results appearing to show a turnaround, we believe that the worst is over. With leasing activity gaining speed and planned acquisitions underway, we believe that a-itrust remains on track to deliver improved results in FY22. TP of S$1.70 is maintained.