SINGAPORE (Jan 30): DBS Group Research recommends investors remain "overweight" on Ascendas India Trust (a-iTrust) given its strong growth profile with potential earnings upside.

a-iTrust reported a strong 3Q18 with DPU jumping 15% y-o-y to 1.64 cents. This represented 24% of DBS's FY18 DPU and was in line with expectations.

See: Ascendas India Trust posts 15% rise in 3Q DPU to 1.64 cents

In a Tuesday report, analyst Mervin Song says DPU growth was supported by additional income from acquisitions and developments and positive rental reversions achieved in prior quarters. These factors also resulted in revenue and net property income (NPI) in INR terms increasing by 18% and 23% y-o-y.

In 3Q18, average rents rose 2-3% at a-iTrust’s Bangalore properties, with rents at Hyderabad and Chennai increasing by 7% and 13% respectively. Rents improved largely due to declining vacancies in the respective submarkets.

Overall portfolio occupancy improved to 94% from 92% in 3Q17, largely driven by improvements at The V and BlueRidge 2. Committed occupancy at BlueRidge 2 could also rise as a-iTrust is currently in advanced negotiations for another 13% of the building.

Over the quarter, a-iTrust’s gearing increased to 31% from 30% in 2Q18 with effective cost of debt dipping to 6.4% from 6.5% in the preceding quarter. The proportion of fixed rate debt fell to 90% from 93% at end September 2017.

In step with its 3Q18 results, a-iTrust also announced it has received in-principle approval to increase the plot ratio for The V property to 4.5 million sf from existing 1.7 million sf of leasable area, providing a redevelopment pipeline over the next 7-10 years.

"We believe this news further strengthens a-iTrust’s future growth pipeline and justifies the premium P/Bk that a-iTrust’s trades at... With 11% capital upside and 5.5% yield, we maintain our BUY call with a TP of $1.25," says Song.

As at Jan 30, units of Ascendas India Trust are up 1 cent to $1.14 or 5.5% FY18 yield.