Date: 25 October 2024
Broker: OCBC Investment Research
Overview
CapitaLand India Trust (CLINT) is a Singapore-listed real estate investment trust (REIT) that provides investors with exposure to the rapidly growing Indian market. Established as the first Indian property trust in Asia, CLINT focuses primarily on income-generating commercial real estate assets, including IT parks, data centers, logistics parks, and industrial facilities across major cities in India.
Recent Financial Performance
For the nine months ending in September 2024 (9M24), CLINT reported a 19% increase in total property income and an 18% rise in net property income (NPI) year-on-year, amounting to SGD 204.9 million and SGD 156.6 million, respectively. This growth was primarily driven by contributions from recent acquisitions and developments, showcasing a strategic expansion of its portfolio.
Key Developments
- Data Centre Expansion: CLINT is making significant strides in data center developments, with ongoing projects in Navi Mumbai and Hyderabad. The trust anticipates completing the first phase of these developments by the end of 2024. Additionally, CLINT is exploring the option to operate the Navi Mumbai data center as a co-location facility, which could attract hyperscale tenants and enhance revenue streams.
- Acquisitions: In 2024, CLINT completed the acquisition of Building Q2, adding 0.8 million square feet of non-SEZ IT office space to its portfolio. This acquisition aligns with CLINT’s forward purchase strategy, which aims to secure strategically located properties in key markets.
- Termination of Master Agreement: CLINT had to terminate the master agreement for seven warehouses in Navi Mumbai due to insolvency issues faced by the lessee’s parent company. Despite this, CLINT is actively managing the transition and intends to operate these assets directly.
Investment Strategy
CLINT’s portfolio primarily focuses on IT parks across key cities like Mumbai, Hyderabad, Bangalore, and Chennai. The trust has progressively expanded its portfolio to include logistics, industrial properties, and data centers, demonstrating a forward-looking approach. It leverages India’s fast-growing sectors, such as e-commerce, digital payments, and data localization, which are driving the need for robust IT infrastructure.
Key elements of CLINT’s investment strategy include:
- Diversification and Expansion: CLINT’s acquisition strategy emphasizes diversification across different asset classes within the real estate sector. The trust’s aggressive expansion into logistics and data centers allows it to capitalize on emerging trends in India’s economy.
- Focus on IT/ITES Leasing: Leasing demand from the Information Technology Enabled Services (ITES) segment remains robust, supported by global capability centers (GCCs) and domestic firms seeking to expand their office space. Positive reversions were observed across key properties, although some assets, such as aVance Hyderabad and aVance I in Pune, experienced slight declines due to rent-free periods.
Financial Outlook
- Fair Value Increase: The broker has raised the fair value estimate for CLINT from SGD 1.19 to SGD 1.28, reflecting stronger long-term growth prospects, particularly in the data center sector. This adjustment considers factors such as reduced risk-free rate assumptions and improved terminal growth expectations.
- Gearing and Debt Management: CLINT’s gearing ratio increased slightly from 38.1% to 40.1% following the issuance of SGD 150 million in notes due in 2027. However, the trust expects to bring this down to 38.5% by year-end as it plans to recognize revaluation gains. Notably, the cost of debt has decreased from 6.2% to 6.0%, reflecting effective debt management strategies.
ESG Initiatives
CLINT has made significant progress in environmental, social, and governance (ESG) initiatives, leading to an upgrade in its ESG rating in December 2023. This upgrade was attributed to:
- Governance Improvements: The appointment of an independent chairperson enhanced governance and increased board diversity.
- Sustainability Efforts: CLINT has committed to a net-zero roadmap, intensifying efforts to improve energy efficiency and increase renewable energy usage. The commissioning of a 21-megawatt captive solar plant in Tamil Nadu has boosted its renewable energy utilization by over 70%, setting it apart as a green investment option.
Risks and Challenges
- Development Risks: Delays in ongoing data center projects or forward purchases not meeting agreed specifications could impact future growth.
- Currency Risk: Unexpected appreciation of the Singapore dollar over the Indian rupee may affect revenue conversion and earnings.
- Tenant Risks: Recent challenges, such as the termination of the master agreement for warehouses in Navi Mumbai, highlight the potential impact of tenant issues on operational stability.
Investment Outlook
The outlook for CLINT remains positive, supported by India’s continued economic growth and increased demand for IT infrastructure. The broker maintains a “Buy” rating on the stock, anticipating continued resilience and growth driven by strategic acquisitions, robust leasing demand, and favorable macroeconomic trends in India.
