About a Reit - Ascendas India Trust is not a Reit Part 2

Historical Performance
This is actually part 2 of the previous posting About a Reit - Ascendas India Trust is not a Reit. You are strongly encouraged to read part 1 first, as it covers more about the background of a-iTrust. Part 2 is more about its historical perfomance. As mentioned in Part 1, Ascendas India Trust is a property business trust that owns IT parks in India. Although it is not registered as a Reit, it has voluntarily adopted some of the Reit guidelines such as 35% (60% with corporate rating) gearing and minimum 90% dividend payout ratio. So how has this property trust fared since its IPO in August 2007? In this posting, I shall cover some periods of major stock movements of a-iTrust. Of course we know that past performance is not indicative of the future performance, but historical performance may sometimes offer us a good point of reference to access a stock.

IPO and Honeymoon Period
The trust was listed in SGX in 1 August 2007 at an offer price of S$1.18. The property trust actually encompassed 2 of the hottest investment themes at that time, namely, Reit and India. Anything to do with Reit and India had been enjoying a good run up. Ascendas India Trust also had the advantage of being another Trust under the Ascendas brand name, the other being the highly successful Ascendas Reit at that time. On top of that, it was listed when the market was extremely euphoric, and on retrospect, just 2 or 3 months before the all time peak of the market. So it was not surprising that it was able to achieved a closing price of S$1.55 on the first day of trading. The stock eventually peaked at S$1.7 about 3 months later. In the prospectus the project annual DPU was about 68.5 cents. At S$1.7, the yield was only about 4%. Market was indeed willing to pay a premium for this stock at that time. 

Fast to go up, Fast to do down
Way back in early 2008, I have done quite a bit of read up about a-iTrust. My conclusion then was that it was fundamentally strong, with gearing at only 4%, and like Ascendas Reit, it has a strong sponsor Ascendas Pte Ltd. It also owned sizable land parcels that can be developed in the future to increase its leasable space.

The peak of its stock price was about 1.70 around Nov 2007.  At about 1.10 around Apr to May 2008, it seems to be an attractive price.

Rather to my surprise, its stock price started to move down from above the 1.10 level in May 2008 to around the 0.70 level within a relatively short time, even before the collapse of Lehman. The stock price bottomed around 0.38 in Oct 2008. It was probably link to the depreciation of rupees and conditions of the Indian economy at that time. 

Boosted by the Improvement of the Political Climate
The stock price started to move up in a significant way around May 2009 after the Indian General Election 2009, when Manmohan Singh, who is pro-economic reforms, was re-elected as the Prime Minister. The stock price was up from around 0.5 level to the 0.7 level. Following this, the stock was able to maintain a general uptrend along with the broader market. 

Selling by Great Eastern
Another significant movement of the stock price was in the Aug 2009 period, when it moved down from 0.85 to around 0.745. This was due to signicant selling by the substantial shareholder Great Eastern, which reduced its stake from 5.99% to 4.95%. But the stock price rebounded quite quickly to above the 0.8 level soon after. Those who dared to take position at 0.745 would have made a handsome profit. There was also the extra bonus in the form of the semi annual dividend distribution soon after. Of course as retail investors we can only speculate at the reasons for the sell down and make intelligent guesses of the bottom.

Recent Uptrend
In the most recent CD (cum dividend) period in Oct 2009, the stock has enjoyed a run up above 0.9. Following the XD in Nov 2009, the stock has dipped to a low of 0.85. But after that the stock has steadily moved up along with the broader market, and temporarily became a S$1 stock again last week.

Based on the latest closing price of 0.990 and the latest half yearly dividend of 3.91 cents per share, the yield of a-iTrust is currently about 7.9%, higher than most of the Reits. The latest NAV per unit is 0.84. Latest gearing is at 13%, lower than most of the Reits.

Conclusion
Although the fundamentals of this property trust is quite strong, one has to take note of its low trading volume (relative to other Reits) and sudden big movements at times. If you are serious about this stock, it may pay to catch up with news about the Indian economy and to a certain extent the polical climate, and also the strength of the rupee vs the singapore dollar.

In recent times, I have read some articles that are very bullish about the Indian Economy. It remains to be seen whether there is going to be another run up of India related investments again.

About a Reit - Ascendas India Trust is not a Reit

If you have checked the SGX website, under the Prices, Indices, Statistics - REITs, you would have noticed that Ascendas India Trust is listed alongside the other REITs. Similarly, also in the SGX website under Products - REITs - Listed Reits, Ascendas India Trust is also listed there. But in actual fact, Ascendas India Trust (a-iTrust) is not a Reit, but it is a Business Trust. As mentioned in the previous posting All about REITs - REIT, Business Trust, and Shipping Trust, there are some differences between a Reit and a Business Trust. A Business Trust is not under the guidelines stated in the MAS Code on Collective Investment Schemes. However, a-iTrust has self-imposed some of these guidelines totally or partially:

• Although there is no gearing limit for a Business Trust, a-iTrust has imposed upon itself the same gearing limits as Reit. So it has a gearing limit of 35%, and up to 60% if it has a credit rating. But different from a Reit, it can also have a gearing limit of 60% without a credit rating if there is approval from the unitholders.
• As a Business Trust, it does not have a minimum payout ratio. However, a-iTrust will follow the Reit in distributing at least 90% of its distributable income.
• As a Business Trust, it does not have a limit on property development activities. For Reit, the limit is 10%, and the major part of its business should be in the form of property rental. Like a Reit, a-iTrust has imposed a limit on property development activities upon itself, but instead of 10% it has set it to 20%.

As for the roles of trustee and manager, a-iTrust is like the other Business Trust in having a single trustee-manager.

About a-iTrust
From the a-iTrust website:
"a-iTrust is a Singapore-based business trust ("BT") registered by the MAS established with the principal objective of owning income-producing real estate used primarily as business space in India, and real estate-related assets in relation to the foregoing. a-iTrust may acquire, own and develop land or uncompleted developments to be used primarily for business space with the objective of holding the properties upon completion."

The sponsor of a-iTrust is Ascendas Pte Ltd, a unit of Singapore government-owned industrial landlord JTC Corp. Ascendas Pte Ltd is also the sponsor of Ascendas Reit.


Property Portfolio and Growth

Currently a-iTrust has a portfolio of 4 IT Parks in Bangalore, Chennai and Hyderabad, with main tenants from the IT and ITES (IT-enabled services) sectors:

• International Tech Park Bangalore (ITPB)
• International Tech Park Chennai (ITPC)
• CyberPearl
• The V

There are 3 more buildings being developed and to be completed over the next 2 years:

• Zenith - Third building in ITPC. Expected completion 2nd half 2010.
  
• Park Square Retail Mall - In ITPB. Expected completion mid 2010.
• Multi-tenanted - 3rd office building in ITPB. Expected completion mid 2011.

These development projects will bring in additional 1.7 million square feet of incoming producing space, a 35% increase over the existing portfolio. On top  of these, there is some more land within ITPB, which after development, can potentially bring in an additional 2.5 million square feet of incoming producing space.

In terms of acquisition growth, a-iTrust has a rights of first refusal agreement with Ascendas India Development Trust and Ascendas Land International Pte Ltd, both of which are units under its Sponsor Ascendas Pte Ltd. It can also acquire properties from the open market if there are opportunities.

Risks
Attractive as it may be, a-iTrust is not without its own set of risks. Following are some of the risks to take note of:

• Country Risk. Since all its assets are in India, its fortune will be closely tied to the economic, and to a certain extent the political situation in India.
• Sector Risk. Its IT Parks tenant portfolio is concentrated in the IT and ITES sectors. Any downturn in these sectors will strongly impact the occupancy rates.
  
• Currency Risk. The rental income is in the Indian rupees. Any depreciation will reduced the dividend distribution in Singapore dollars. To manage currency visibility on the distribution to Unitholders, it has a currency hedging strategy of at least one year in advance. The rate hedged for May 2010 distribution is Rs 33.47 to S$ 1.