Ascendas offers Reit-like trust backed by Indian assets

The trust will invest in real estate that provides business space primarily for Indian outsourcing and IT firms.
Singapore-based Ascendas India Trust is getting ready to kick-off an institutional roadshow this week for what will become the first opportunity for investors to buy a Reit-like vehicle backed by Indian assets.

The vehicle, which is to be known as a-iTrust, will be listed in Singapore but will focus on income-producing real estate that is used primarily as business space within information technology parks and other outsourcing hubs in India. The initial four properties in the portfolio are located in Bangalore, Hyderabad and Chennai, which are viewed as attractive destinations for IT and IT enabled services companies.

The trust is looking to raise up to S$500 million ($328 million) from the sale of between 53% and 56% of its total units to the public, or up to S$550 million if the 10% greenshoe is exercised as well. Based on a price range of S$1.01 to S$1.18, it will offer an initial annualised yield of between 4.75% and 5.22% for the year to March 2008.

While this implies a premium to the Singapore Reit average, which is currently around 4%, the main purpose of the a-iTrust is growth and it will be well positioned to take advantage of IndiaÆs economic growth that is expected to range from 7% to 9% in the coming few years. The business process outsourcing and IT sectors are currently among the highest growth sectors in the country and have a high demand for business space.

One source says investors shouldnÆt compare the IPO yield of a-iTrust to the current yield of Reits in the market as most of them have come down quite substantially as their businesses have grown. The proper comparison, he says, is to look at the yield at which they initially came to market. For example, CapitaRetail China Trust, which invests in retail properties in the Mainland, offered a 2007 yield of 5.4% at IPO, but is now trading at less than 3%.

ôA yield of 5% is an attractive entry point, but this is not a yield play,ö the source says.

Instead, a key attraction of the newcomer, according to observers, is the fact that it includes a pipeline of 1.5 million square feet of proposed developments as well as 24 acres of land that is available for developments, which gives it a much more aggressive growth profile than other Singapore-listed real estate investment trusts.

This approach does in fact prevent the trust from branding itself as a Reit since Reits can only have 10% of their portfolios under development, while a-iTrust has set a development limit for itself at 20%. As a result, the vehicle is brought to market as a business trust, even though it is generally structured as a Reit, including asset class specific features such as a commitment to pay out 100% of its distributable income in the first two financial years to March 2009 and at least 90% thereafter, and a gearing limit of 35%.

ôThe vehicle is very unique as it has the flexibility of the development pipeline, while the Reit structure gives it stability,ö argues one source.

The trust also has a right of first refusal for any suitable real estate projects developed either by its sponsor, which is a wholly-owned unit of Singapore government-linked Ascendas Pte, or by Ascendas India Development Trust, which is a private real estate fund focusing on mixed and multi-use integrated development projects in high growth sectors in India.

The Development Trust has a target investment value of S$1 billion and currently holds about 100 acres of land in Pune and Nagpur.

However, a-iTrust is expected to provide organic growth as well as its current leases have good potential for higher rents. According to the listing document, its property income is expected to grow by 18% from S$105.3 million in fiscal 2008 to S$124.3 million in fiscal 2009. The dividend per unit is forecast to increase by 22% from S$0.056 per unit in fiscal 2008 to S$0.0685 in fiscal 2009, based on the maximum offering price.

JPMorgan is the sole financial adviser to the trust as well as joint bookrunner together with Citi and DBS.

According to people familiar with offering, a-iTrust received a good response during pre-marketing and investors are said to like the Indian exposure and love the fact that it will be listed in Singapore and sponsored by such a well-known name.

Ascendas Pte, which will own about 17% of the a-iTrust at the time of listing, is viewed as one of AsiaÆs leading providers of business space, covering high-tech, science, business and industrial parks as well as customised developments for a number of industries. The company has more than 14 years of experience of property development and management in India and has established relationships with both local and state governments in the South Asian nation. It is also the sponsor and manager of SingaporeÆs first business Reit û Ascendas Reit (or a-Reit as it is perhaps better known) - which listed as far back as 2002.

The remainder of the units will be held by four original investors who owned part of the initial four properties in the portfolio through their investment in the private fund that has now been transformed into the a-iTrust business trust. Part of the proceeds from the IPO will be used to redeem units from these investors to enable them to reduce their stakes. The initial investors are General Electric Capital, The Great Eastern Life Assurance Co. Lianhe Investments and Forum Asian Realty Income.

Some of the proceeds will be used to pay down some rather expensive borrowings in India which have already been replaced by more efficient lending facilities in Singapore. At the time of listing the trust will have a gearing of only 4.1%, which will increase to 18.9% if its available credit facilities are drawn down in full. This low gearing will further underline the growth focus of the trust as it will enable it to fund continued expansion through additional debt rather than having to come back to the equity markets.

The final price is expected before July 23 when the retail offering is expected to start. The trading debut is tentatively scheduled for the end of July or early August.
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