CapitaLand India Trust (SGX:CY6U), or CLINT for short, as the name implies, invests in properties in the South Asia country.

The business trust’s focus is on the growing IT industry, industrial and asset classes, and new economy asset classes such as data centres. As at 31 December 2023 (which is its financial year end), its portfolio comprises 9 world-class IT business parks, 4 industrial and logistics facilities, and 4 data centre developments in India, valued at S$3.0 billion.

Even though CLINT is structured as a business trust, it offers stable income distributions similar to a REIT (Real Estate Investment Trust).

Last Friday (19 April 2024) afternoon, CLINT conducted its 17th annual general meeting (AGM) for the financial year 2023, which I have attended virtually (kudos to them for making this option available, along with allowing unitholders who attend the meeting virtually to ask questions, as well as vote for the resolutions live). This is also the first time I attended the business trust’s AGM following my investment in it last year (May 2023) with my average invested price at S$1.02.

For the benefit of those who are not able to attend the meeting, I have compiled a summary of the meeting – in particular, the presentation made by its CEO, Mr Sanjeev Dasgupta, responses to questions raised by fellow AGM attendees, as well as results of the 3 resolutions put to vote during the meeting:

Presentation by CapitaLand India Trust’s CEO, Mr Sanjeev Dasgupta

Overview of CLINT’s Properties (as at 31 March 2024):

  • 18 diversified world class assets (including the 3 assets acquired in Q1 FY2024) in 5 key markets in India (Bangalore, Chennai, Hyderabad, Mumbai, and Pune). Mr. Sanjeev mentioned that one of the tenants is an Apple iPhone manufacturer.
  • Assets under management is at S$3.2 billion, up by 20% year-on-year (y-o-y) due to grow in Net Asset Value (by 16% y-o-y to S$1.29 per unit) and new properties acquired.

Financial Results for FY2023:

  • Total property income was up by 21% in INR-terms (from INR11,906m to INR14,377m) and by 11% in SGD-terms (from S$210.6m to S$234.1m) attributable to income contributions from new acquisitions (namely Arshiya Warehouse 7, Industrial Facility 1 in Mahindra World City, ITPH Block A, and ITPP-H) and higher rental income from existing properties.
  • Net property income increased by 17% in INR-terms (from INR9,429m to INR11,033m) and by 8% in SGD-terms (from S$166.8m to S$179.6m) due to higher property income, offset by higher operations and maintenance expenses and property management fees.
  • Income available for distribution fell by 3% in INR-terms (from INR5,974m to INR5,812m) and by 10% in SGD-terms (from S$105.7m to S$94.6m) due to higher net finance costs and current income tax.
  • Distribution Per Unit (DPU) declined by 15% in INR-terms (from INR4.64 to INR3.95) and by 21% in SGD-terms (from 8.19 SGD cents to 6.45 SGD cents), as a result of a larger unit base (as preferential offer widened CLINT’s unit base by 9%), finance cost (which impacted DPU by 6%), and the remainder due to unfavourable forex.

Portfolio Occupancy:

  • Committed occupancy at 93% – particularly, Mr Sanjeev shared that the occupancy rates of ITPC and CyberVale were up to 95% as these 2 properties saw their occupancy rates climbed following amendments to the Special Economic Zone (SEZ) Act.
  • 44% of CLINT’s tenants are from companies based in the United States. Mr. Sanjeev noted that among the sectors these tenants operate in, 60% belong to the technology and software development industries. He attributed this trend to India’s appealing costs and the availability of skilled professionals in the advanced technology sector.
  • In FY2024, 15% of the leases are due for renewal. However, more than 50% of the leases are either renewed or highly likely to be renewed.

Debt Maturity Profile & Capital Structure:

  • Gearing ratio: 35.8%, with an available debt headroom of S$1,058m before it reaches the regulatory limit of 50%.
  • Cost of Debt: 6.3% – which Mr Sanjeev commented that in the last 6 months of FY2023, cost of debt stayed flat, and should remain at such levels in the financial year ahead. He also shared that the finance team is exploring various ways to reduce this.
  • Interest service coverage: 2.6x
  • % of fixed rate debt: 74.9%

ESG Progress:

  • Environmental: 39% of the total business park properties are on renewable energy consumption; 99% properties are green-certified; 58% of borrowings are sustainability-linked loans.
  • Social: CLINT’s CSR contribution at S$2.1m; 89 volunteering hours contributed by employees of the Trustee-Manager; 3 schools established in Bangalore and Pune to cater to lower income groups.
  • Governance: CLINT rose to 4th rank (from 6th rank in 2022) in Singapore Governance & Transparency Index.
  • Accolades: 4 Stars in GRESB Real Estate Benchmark Report 2023 (1st year participation); Grade A in GRESB Public Disclosure Report 2023; A Rating in MSCI ESG Rating (up from BBB in 2022).

India’s Growth Drivers to Support CLINT’s Growth Prospects:

  • GDP Growth: In March 2024, it was reported that India’s GDP grew by 7.6%, which was the highest among the major economies last year.
  • Infrastructure Growth: Particularly, road and rail aided in the growth of the logistics sector in India.
  • Digitalisation: The Indian government have built one of the most high quality infrastructures in the world, which benefits the data centre industry, where there was an increase in GenAI presence in the country.
  • Amendments to SEZ Act: Effective since late last year, this allowed a wide variety of tenants to SEZ properties, and Mr Sanjeev opined that CLINT’s properties will continue to benefit (in terms of occupancy rates) the year ahead (i.e, 2024).

Key Growth Drivers for FY2024:

  • Net Property Income (NPI) Drivers:
    • ITPH Block A, ITPP-H, and Industrial Facility 2 & 3 started to contribute to CLINT’s revenue from January, May, and December 2023 respectively;
    • On top of the additions, new leases signed in Q4 2023 would also result in a 20% increase in CLINT’s revenue from Q1 FY2024;
    • At the same time, there will be some cost savings in energy due to the generation of captive solar power in Tamil Nadu.
  • Acquisition & Development Pipeline:
    • Asset Acquired: aVance Pune II 3, Pune; Leasing Status: 60% committed;
    • Asset to be Acquired: Building Q2, Aurum Q Parc, Navi Mumbai; Leasing Status: 63% pre-committed;
    • Developments to be Completed: MTB 6, ITPB, Bangalore, and FTWZ, Cybervale, Chennai;
    • Income contributions from incremental funding of committed Forward Purchases.

Responses to Questions by Raised by AGM Attendees

  • When asked about CLINT’s borrowing of 13 billion Indian rupees (S$214 million) from JPMorgan India in November 2023, along with interest rates for the loan, CFO Mr Cheah Ying Soon explained that the funds were intended to support the construction of a data centre in Navi Mumbai. He noted that the interest rates were comparable to the swap rates for SGD loans.
  • The same unitholder inquired about the proportion of onshore to offshore loans. Chairman Mr Manohar Khiatani responded that the ratio was 5% onshore and 95% offshore, with half of the offshore loans hedged to the Indian Rupee. He noted that this strategy was adopted because the overall borrowing costs were lower. Additionally, he mentioned that the favourable loan terms were possible because the company’s sponsor, CapitaLand Investment Limited, counts Temasek Holdings as a major stakeholder.
  • On a question about the growth rate of CLINT’s NAV, the CEO responded that, after accounting for SGD/INR forex losses, the growth rate is approximately 4-5% per year in SGD terms. In INR terms, the growth rate is around 8-9% annually.
  • A unitholder pointed out that the unit price of CLINT is currently 30% below its Net Asset Value (NAV) and inquired about the potential for dual-listing in India, where similar industry companies trade at prices near their NAV. The CEO responded by stating that the regulations for dual-listing REITs are not yet established, and India has stringent dual-listing restrictions for companies. Moreover, he noted that there are no significant advantages from arbitrage in this situation.
  • The same unitholder raised concerns about the stagnation of CLINT’s DPU, noting that the payout for FY2023 was identical to that of FY2019. In response, the CEO explained that the decline in FY2023 primarily resulted from an increase in the number of units, as well as unfavourable movements in foreign exchange rates.
  • When asked about the demand for CLINT’s properties, the Chairman explained that the take-up rate for business park spaces remains robust, with continued office work in India supporting this trend. He noted that for the logistics spaces, a strong leasing demand combined with limited quality supply has been advantageous for the business trust. Regarding the data centre properties situated within the business parks, the Chairman pointed out the benefit of not having to purchase additional land. However, since these properties are still under development, he requested patience until the completion, which is expected to have a positive impact on CLINT’s financial performance.
  • On a question about the biggest challenge for CLINT ahead (apart from the high interest rate environment), the Chairman highlighted risks coming from geopolitical tensions. Given India’s reliance on energy imports, an escalation in the conflict between Israel and Iran could lead to a surge in energy prices, which would, in turn, have broader repercussions.
  • Addressing concerns about CLINT’s interest coverage ratio, where, at 2.6x as of 31 December 2023, was inching close to 2.5x, the CFO commented that REITs generally face challenges in the current high interest rate environment. However, he noted that CLINT’s total cost of debt has remained stable at 6.3%. To improve its interest coverage ratio, CLINT plans to increase its revenue and net property income. Regarding the target interest coverage ratio, which is set at approximately 2.9-3.0x, the CFO expressed confidence that it could be achieved next year if interest rates decrease. He further mentioned that even if the interest coverage ratio dips below 2.5x and the gearing limit falls to 45%, CLINT’s current gearing ratio of 35.8% remains at a healthy level. Nonetheless, he does not anticipate any further decline in the interest coverage ratio.
  • On CLINT’s revenue contributions in each property type after the 4 data centres are completed, it will be distributed as follows: business parks will account for 75%, data centres will contribute about 15%, and industrial and logistics properties will make up 10%.
  • Addressing a query about the decline in the business trust’s Distribution Per Unit (DPU) for FY2023, despite earlier statements in the equity fundraising document promising accretive results from the use of the funds, the CEO indicated that these benefits would begin to materialise in FY2024.
  • Finally, on concerns about the spike in audit fees in FY2023, the CFO responded it was due to an expansion in CLINT’s portfolio, along with labour cost in India growing at a 10% pace.

Results of 3 Resolutions Put to Vote during the Meeting

  • Resolution 1, which is to receive and adopt the Trustee-Manager’s Statement and the Audited Financial Statements of CLINT, for the financial year ended 31 December 2023, together with the Auditor’s Report thereon, was passed with 99.94% of the votes for, and 0.06% of the votes against.
  • Resolution 2, which is to re-appoint Deloitte & Touche LLP as Independent Auditor of CLINT, to hold office until the conclusion of the next Annual General Meeting of CLINT, and to authorise the Directors of the Trustee-Manager to fix their renumeration, was passed with 99.93% of the votes for, and 0.07% of the votes against.
  • Resolution 3, which is to authorise the Trustee-Manager to issue Units and to make or grant convertible instruments, was passed with 91.55% of the votes for, and 8.45% of the votes against.

Closing Thoughts

On the whole, I felt that the prospects of CLINT in the years ahead remains bright – the properties under development, as they are being completed, will incrementally contribute towards the business trust’s revenue over time.

In terms of the properties’ occupancies, with an increase in number of MNCs (Multi-National Corporations) looking to expand their business presence in India due to the lower cost of doing businesses, along with its affluent young population, I am of the view that the business trust will be able to attain high levels of portfolio occupancies for its properties. This is in addition to amendments made to the SEZ Act, which poses as a tailwind for CLINT (as we can see how it has resulted in the jump in the occupancy rates of ITPC and CyberVale to 95%, and in the year ahead, we should continue to see it continuing to benefit from it).

The biggest bugbear at the moment is interest rates – where upcoming interest cuts will see the business trust’s key debt profile metrics such as gearing ratio, interest coverage ratio, and average cost of debt improve – and lower finance cost will mean an improvement in DPU.

With that, I have come to the end of my summary of CapitaLand India Trust’s AGM. As always, I hope you have found the contents presented in this post useful. Do take note that any opinions expressed above are purely for educational purposes only, and they do not constitute any buy or sell calls for the business trust’s units. You are strongly encouraged to do your own due diligence before you make any investment decisions.

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Disclaimer: At the time of writing, I am a unitholder of CapitaLand India Trust.

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