Sanjeev Dasgupta, CEO of CapitaLand India Trust CY6U ’s (CLINT) trustee-manager, credits several factors for keeping the trust ahead of its peers. This approach helped CLINT secure the top position in growth in ROE over three years in The Edge Singapore’s Billion Dollar Club REIT category. CLINT’s 2023 win marks the third time it has received this BDC award, having previously achieved the highest score for weighted ROE growth in 2017 and 2018. CLINT was also awarded the fastest growing company and best in the sector under the REIT category in 2017.
He adds: “Two things have helped us. One is, of course, India’s growth momentum. I think we will be able to ride on that, and the growth momentum has been remarkable,” he says. “The growth in IT services translates into demand for [our] real estate. That’s a direct connection.”
IT services revenue is rebounding after a steep drop in 2021 due to India’s pandemic-led lockdowns. Total contract values have also risen since a low point in the first quarter of 2021. “The second thing is we’ve always taken a more proactive approach to value-add to our portfolio,” Dasgupta adds.
CLINT maintains an active development pipeline as part of its value-added business model. As of Sept 30, it has a total development potential (including four data centres) of 7.1 million sq ft, which comprises 3.4 million sq ft in Bangalore, 2.3 million sq ft in Hyderabad, 0.8 million sq ft in Navi Mumbai and 0.6 million sq ft in Chennai.
Development assets provide returns much higher than REIT yields. Even after rising interest rates and CLINT’s blended cost of debt of 6.3% in the first six months of the year, returns on development assets should easily outstrip these rising costs. CLINT’s own annualised trading yield is also around 6.3%.
CLINT obtained GRESB 4 stars for its sustainability efforts for the 2023 GRESB Standing Investments Benchmark Report and the 2023 GRESB Development Benchmark Report in its inaugural submission year. In addition, it also maintains Grade A for the 2023 GRESB Public Disclosure Report.
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Listed in 2007, CLINT is a highly liquid option for institutional and retail investors on the Singapore Exchange S68 looking to benefit from India’s growth and digitalisation. A recent preferential offering in July to raise $150 million was oversubscribed, highlighting its popularity.
The group’s business model aids the trust’s net property income (NPI) in India to grow steadily. This comprises mainly of the value of the INR compared to the Singapore dollar, but in recent quarters includes higher costs.
CLINT’s $2.7 billion portfolio primarily comprises IT parks. The property trust has recently diversified its portfolio to include logistics and industrial assets and new economy assets like data centres, ensuring sustainable and stable income streams for unitholders.
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Dasgupta anticipates that within four to five years, with the completion and leasing of its four data centres, around 75% of CLINT’s assets under management (AUM) will likely be from IT parks, with 15% from data centres and 10% from logistics.
Development and forward purchases
As an example of the value-add strategy, CLINT has announced the redevelopment of International Tech Park Hyderabad (ITPH) in phases over the next seven to 10 years as it would unlock significant value for unitholders as it increases the development potential without incurring incremental land cost. Phase one of Block A, a Grade A 1.4 million sq ft office building completed in January this year, has received a 100% lease commitment from leading global corporations and has resulted in a 14% uplift in the valuation of ITPH. Construction has begun for a data centre in ITPH.
Block A commenced operations in September, and its revenue contribution is expected to stabilise by the first half of 2024. Its forward purchase strategy is where CLINT ties up with partners with the land and planning permission. “We come in and take up the existing debt and become the sole senior lender under a pre-agreed valuation framework, and eventually, we buy the completed asset,” Dasgupta says.
In March 2021, CLINT acquired an industrial facility in Chennai from developers Casa Grande Group, marking its first industrial asset and phase one acquisition at Mahindra World City. CLINT funded the project through non-convertible debentures, and CLINT’s trustee-manager made share purchase agreements for the projects on completion. Phase one was completed in May 2022.
The facility is leased to Pegatron, a global electronic manufacturer known for producing iPhones. Reuters reported earlier this year that Pegatron plans to open a second facility in Chennai shortly after the launch of the first one. Indian media outlets also reported that iPhones helped smartphones become one of India’s top five most exported commodities in the fiscal year that concluded in March.
India’s commerce ministry data shows that the country’s smartphone exports surged to US$10.9 billion ($14.9 billion) in fiscal year 2023 from US$5.4 billion in the previous year. In July 2022, CLINT revealed plans to acquire two industrial facilities at Mahindra World City. Construction for these projects is anticipated to conclude by the second half of 2023, followed by CLINT’s acquisition after a 12-month stabilisation period.
The advantage of forward purchases is the yield on cost, which — like development projects — is in the mid-teens. Besides Mahindra World City phase two in Chennai, the assets which would be acquired under the forward purchase strategy include aVance in Hyderabad, BlueRidge 3 in Pune, Gardencity and Ebisu in Bangalore, as well as Building Q2 and warehouses in Navi Mumbai.
In November last year, CLINT and Larsen & Toubro (L&T) signed a non-binding term sheet for a commercial platform to develop nearly 6 million sq ft of prime office spaces in Bangalore, Chennai and Mumbai. In the agreement, L&T will handle the construction and development of office spaces, while CLINT will take charge of marketing the office spaces.
More data centres coming
India’s digitalisation is creating an ideal environment for data centre landlords. Initiatives such as India Stack, which comprises open APIs and digital public goods for digitising identity, data and payments for the population of 1.4 billion, along with the Unified Payments Interface (UPI) and Aadhaar, a 12-digit unique identity number, are spearheaded by the central government.
Dasgupta says that his team started evaluating data centres in 2019. “The data centre market is seeing stronger momentum,” he says, adding that the drivers are the entrance of the three big hyperscalers into India and the growth of cloud infrastructure. “An interesting trend in the last six months and picking up momentum very strongly is hyper scalers’ interest in campus-style data centres, which are more focused on AI data centre space,” he continues. In addition, government legislation around data consumption of Indians to be housed within the country will likely lead to more demand for data centre capacity.
“When we evaluated investing in data centres, we felt locking in the land was important. It has to be in locations where power and telecommunication infrastructure are available. We have at least two sources of fibre and power for our data centres,” Dasgupta adds.
CLINT’s initial data centre site was purchased in Airoli, Navi Mumbai, in 2021. In December 2022, CLINT acquired a data centre site in Chennai from a manufacturing company in the Ambattur industrial area. The remaining data centres are under construction within CLINT’s ITPH and International Tech Park Bangalore (ITPB).
“With growing digitalisation needs, we changed the master plan and carved out some land for data centres in Hyderabad,” Dasgupta says. CLINT has two data centres under construction in Mumbai and Hyderabad, with projects in Chennai beginning in the fourth quarter of this year and Bangalore in 1H2024.
In 2022, CLINT received in-principle approval from Maharashtra State Electricity Transmission Company for a power capacity of up to 108MW for its Navi Mumbai data centre. The data centres to be built in ITPH and ITPB will have capacities of about 40MW and 42MW, respectively. The plans also include in-principle approval from the Transmission Corporation of Telangana to provide a power capacity of up to approximately 80MW for the data centre at ITPH. The Chennai data centre will have a capacity of around 54MW.
“Capex for data centres on a colocation model is about $1.4 billion to $1.5 billion,” Dasgupta says. Valuations for the completed data centres will likely depend on cash flow and comparable capitalisation rates. As a rough rule of thumb, valuations could be as high as 2 times capex, he adds.
Dasgupta is targeting 30% to 35% of power for the data centres to be green. For the whole portfolio, 46% of the total landlord’s energy consumption is powered by renewables. In Bangalore, 100% of the energy used is from renewable sources.
Another notable trend in India is infrastructure development. As the Times of India reported, the Navi Mumbai International Airport is set to become operational by December 2024. A bridge connecting Navi Mumbai to the main Mumbai island is expected to be completed by the end of this year. Significant efforts are also being made to construct and upgrade metros in cities like Mumbai, Hyderabad and Bangalore.
“The metro in Bangalore is in front of our park, and that metro station is going live. The Hyderabad parks are quite close to the metro station,” Dasgupta says. All these developments point to continued demand for CLINT’s assets as a new digitalised India with its 21st-century infrastructure emerges.
