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Ishaan Real Estate Plc
Neutral
ISH.L, ISH LN
FY11 results: Portfolio gaining in completed assets;
now needs visibility on exits
FY11 results: Ishaan reported adjusted FY11 NAV/share of 95.4p down
2% from Sep-10 NAV of 97p primarily on adverse FX. Portfolio valuation
(cap rate 11-11.5%, WACC of 16%) after adjusting for the construction
expenditure has remained largely unchanged since Sep-10. Ishaan’s stake in
the portfolio as per C&W is valued at £251M vs. its investment of £160M.
Visbility on exits as yet low: Ishaan now has close to 6 msf of completed
area and will reach close 10 msf over the next two years (completion of
under-construction assets). However, visibility on exits of rental generating
assets remains low given that demand for such space in India has not
matured. Vivarea (Mumbai residential project) is scheduled for completion
next year, and potential flow-through of that to shareholders is the earliest
possible fundamental catalyst for the stock price.
Lease momentum is overall healthy with 0.75msf of space being leased
over the last 6 months. This takes overall leasing to 6.9msf or 66% of the
ongoing projects (11msf). In addition to this, Ishaan has LoIs in place for
1.5msf of space. While incremental leasing moderated in 2H FY11 vs. 1H
(0.7msf in 2H vs. ~2.3msf in 1H); overall FY11 was the best year for Ishaan
(~3msf leased) since the launch of these projects in Mar-07. Avg rentals
remained stable at 30-35psf. Execution too progressed well with rentyielding area doubling to 4.4msf in FY11 (from 2.1msf at FY10 end) and an
additional 1msf to be operational by Mar-12. Assuming avg rental of
Rs35psf, this should generate annualized rental income of Rs2.3B (~£32M).
Funding position is comfortable with debt facilities in place to fund the
construction of the entire under-construction portfolio. Most of the debt is
rent discounting debt so there is limited cash flow stress on projects. Further
net cash of ₤13.6M places it in a comfortable position to start work on future
projects. Debt to portfolio value was reasonable at 0.4x. Interest costs,
however, increased by 200-300bp to 12-13%.
Maintain Neutral: We revise our PT marginally to 76p (vs. 72p earlier) as
we roll forward our timeframe to Mar-13 and factor in revised development
timelines. Our PT is based on a 25% discount to our SOTP estimate given
the lack of trading liquidity on the AIM Market. The pace of office leasing
recovery is a key upside/downside risk to our PT and rating
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ishaan Real Estate Plc
Neutral
ISH.L, ISH LN
FY11 results: Portfolio gaining in completed assets;
now needs visibility on exits
FY11 results: Ishaan reported adjusted FY11 NAV/share of 95.4p down
2% from Sep-10 NAV of 97p primarily on adverse FX. Portfolio valuation
(cap rate 11-11.5%, WACC of 16%) after adjusting for the construction
expenditure has remained largely unchanged since Sep-10. Ishaan’s stake in
the portfolio as per C&W is valued at £251M vs. its investment of £160M.
Visbility on exits as yet low: Ishaan now has close to 6 msf of completed
area and will reach close 10 msf over the next two years (completion of
under-construction assets). However, visibility on exits of rental generating
assets remains low given that demand for such space in India has not
matured. Vivarea (Mumbai residential project) is scheduled for completion
next year, and potential flow-through of that to shareholders is the earliest
possible fundamental catalyst for the stock price.
Lease momentum is overall healthy with 0.75msf of space being leased
over the last 6 months. This takes overall leasing to 6.9msf or 66% of the
ongoing projects (11msf). In addition to this, Ishaan has LoIs in place for
1.5msf of space. While incremental leasing moderated in 2H FY11 vs. 1H
(0.7msf in 2H vs. ~2.3msf in 1H); overall FY11 was the best year for Ishaan
(~3msf leased) since the launch of these projects in Mar-07. Avg rentals
remained stable at 30-35psf. Execution too progressed well with rentyielding area doubling to 4.4msf in FY11 (from 2.1msf at FY10 end) and an
additional 1msf to be operational by Mar-12. Assuming avg rental of
Rs35psf, this should generate annualized rental income of Rs2.3B (~£32M).
Funding position is comfortable with debt facilities in place to fund the
construction of the entire under-construction portfolio. Most of the debt is
rent discounting debt so there is limited cash flow stress on projects. Further
net cash of ₤13.6M places it in a comfortable position to start work on future
projects. Debt to portfolio value was reasonable at 0.4x. Interest costs,
however, increased by 200-300bp to 12-13%.
Maintain Neutral: We revise our PT marginally to 76p (vs. 72p earlier) as
we roll forward our timeframe to Mar-13 and factor in revised development
timelines. Our PT is based on a 25% discount to our SOTP estimate given
the lack of trading liquidity on the AIM Market. The pace of office leasing
recovery is a key upside/downside risk to our PT and rating
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