DBS Group Research analysts Derek Tan and Dale Lai have maintained their “buy” call on CapitaLand India Trust (CLINT) with a target price of $1.50 following the REIT’s release of its 2HFY2022 ended December results.
In their Feb 7 report, the analysts note that CLINT’s FY2022 distribution per unit (DPU) is in line with estimates.
They also see a close correlation between CLINT’s DPU growth and higher P/B multiples. With transactions in India within the 12%-15% returns — much higher than its cost of capital — CLINT remains in the sweet spot to deliver accretive acquisition to unitholders, Tan and Lai highlight.
CLINT’s overall portfolio occupancy rates improved to 92% as at Dec 2022. The improvement mainly came from International Tech Park Chennai, which saw its committed occupancy rates jumping to 92%. The manager is seeing good enquiries for the vacated space, say Tan and Lai.
“We understand that tenants are doing fit-outs and should start to contribute to revenues more meaningfully in 2023,” they add.
CLINT’s weighted average lease expiry is 3.7 years. The manager has about 10% of its base rent expiring in 2023, of which 75% has been renewed or is likely to be renewed. This provides investors with good income visibility for the REIT, the analysts say.
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With micro markets seeing declining vacancy rates, the analysts expect overall portfolio occupancy levels to improve in 2023.
Given the steady progress in CLINT’s development projects across the board, incremental contributions can be expected in 2023, Tan and Lai note. They add that the pipeline of CLINT’s forward-funding projects is expected to potentially grow its gross floor area by 65% over time.
“In the immediate term, the manager has completed the development of 1.36 million sqft development in IT Park Hyderabad which is 39% leased as at Dec 2022 and should start contributing meaningfully through 2023 as the property is leased up progressively.”
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Additionally, CLINT’s growth pipeline of seven projects totalling $924 million remains a key driver to inorganic growth in the medium term, with the manager disbursing over $316 million with a further commitment of $608 million in the coming four to five years, the analysts add.
The next potential acquisition from this pipeline will be aVance 5 and BlueRidge Phase 1 as well as Aurum Q Parc Building 2.
CLINT is currently building a pipeline with more value-accretive deals, the analysts highlight. The manager has entered into a number of forward purchase contracts as well as an interested party transaction with its sponsor for the acquisition of IT Park Pune, an IT Special Economic Zone with over 2.3 million sqft floor area across four buildings. The property will be acquired for a proposed IDR13.5 billion ($221.9 million). DBS has not priced in this deal subject to its funding metrics.
Tan and Lai continue to like CLINT for its attractive valuation at 1.1x P/B, below its mean, with a steadily growing FY2023-FY2024 yield of 7.6% to 8.4%, highest in the SREIT space.
As at 9.35am, units in CLINT are trading 1 cent higher or 0.85% up at $1.19.
