Latest / Investor Exchange / CapitaLand India Trust Pivots From Offices To Data Centers In FY2025

Transcript

CapitaLand India Trust Pivots From Offices To Data Centers In FY2025 · Investor Exchange

• 0:02
  Time for another Investor Exchange Podcast. Here are your hosts, Matt and Sally.
• 0:08
  Welcome back to The Deep Dive. It is great to have you with us.
• 0:11
  Today, we are turning our gaze
• 0:13
  to one of the most dynamic economic stories of the last decade, India.
• 0:18
  But we aren't just talking about macroeconomics. We're zooming in on real estate.
• 0:23
  Specifically, the lens through which many international investors view that
• 0:27
  Indian growth story. We are talking about Capitaland India Trust, or client.
• 0:32
  It's a fascinating vehicle to study, you know, If you want to understand how
• 0:36
  the digital economy physically manifests in India through IT parks,
• 0:40
  logistics hubs, and now data centers, Clay & T is, well, it's essentially the
• 0:44
  blueprint. It's the hardware that all the software runs on.
• 0:47
  Exactly. And just to set the scene for everyone listening, today is Tuesday, February 10th, 2026.
• 0:52
  The source material we have in front of us is pretty much hot off the press.
• 0:54
  The full financial results for the financial year ending December 31st, 2025.
• 0:58
  And looking at these documents, I mean, our mission today is pretty straightforward.
• 1:01
  We need to strip away the corporate gloss and analyze these papers like an investor would.
• 1:06
  Is the company healthy? Where's the cash coming from?
• 1:09
  And perhaps most importantly, does the future look as bright as the slide deck suggests?
• 1:14
  Right, because clients is betting big on urbanization and digitization.
• 1:18
  So let's not bury the lead.
• 1:20
  We have to start with the headline numbers, the distribution per unit, or DPU.
• 1:24
  The number that matters most to the unit holders. Yeah, that's the dividend
• 1:27
  check that actually lands in the bank account.
• 1:29
  Precisely. For FY 2025, the DPU came in at 7.87 Singapore cents.
• 1:34
  Now, on the surface, that's just a number.
• 1:37
  But compared to last year, that is a 15% increase year on year.
• 1:41
  That feels significant.
• 1:42
  Oh, it's very significant. In the world of real estate investment trusts or
• 1:45
  REITs, you're usually celebrating if you beat inflation by a point or two.
• 1:49
  A 15% jump is a real outlier. And if you look closer at the second half of 2025,
• 1:54
  the momentum actually... It accelerated.
• 1:56
  It accelerated, yeah. The DPU for the second half alone was up 22% compared
• 2:00
  to the same period in 2024.
• 2:02
  22% just in the second half? Yes. That suggests that whatever growth engines
• 2:07
  they turned on, they really started humming late in the year.
• 2:10
  It wasn't a steady climb, it was a ramp up.
• 2:13
  And that creates a lot of positive momentum heading into 2026.
• 2:17
  That is a massive jump for a property trust. So let's unpack the revenue side.
• 2:21
  Total property income rose 6% in Singapore dollar terms to S-294.4 million dollars.
• 2:27
  But here's where it gets tricky.
• 2:29
  In Indian rupee terms, it grew 12 percent. And that's the classic currency nuance
• 2:35
  we always have to watch with these cross-border trusts.
• 2:37
  The underlying business in India grew by double digits 12 percent,
• 2:41
  which is fantastic organic growth.
• 2:43
  But because the Singapore dollar appreciated against the rupee when they translate
• 2:47
  that back to Singapore dollars for the annual report, the figure is a bit more muted at 6 percent.
• 2:52
  So the currency acts like a bit of a break on that headline number. Exactly.
• 2:55
  It's a translation gear. But the metric that really caught my eye was the income
• 2:58
  available for distribution.
• 3:00
  Which jumped 17 percent in Singapore dollar terms.
• 3:03
  Correct. And that's the real indicator of cash flow generation.
• 3:06
  It tells us that despite the currency headwinds, the operational efficiency
• 3:10
  and the new income streams were strong enough to deliver a hefty pay raise to investors.
• 3:15
  It means they're keeping more of what they earn. So let's answer the big question.
• 3:19
  Where is this extra money coming from?
• 3:22
  You don't get a 15% DPU hike by just sitting on the same buildings and hoping
• 3:26
  for the best, right? No, you definitely don't.
• 3:28
  Looking at the breakdown, the growth came from three specific buckets.
• 3:32
  First, you've got the existing properties. They simply charged higher rents.
• 3:36
  We'll get to the rental reversion numbers in a minute. And, well, they are impressive.
• 3:39
  Okay, and the second bucket? New completions. They finished construction on
• 3:43
  some major assets, specifically MTB6 at International Tech Park Bangalore,
• 3:50
  that's ITPB, and the Cybervale Free Trade Warehousing Zone.
• 3:54
  Just to clarify for our listeners, MTB stands for Multi-Tenanted Building, right?
• 3:59
  Yes, essentially a large office block designed for multiple companies.
• 4:02
  When you finish a building like that and tenants move in, that creates a brand
• 4:06
  new stream of rental income that, you know, simply didn't exist on the balance sheet the year before.
• 4:11
  And I'm guessing the third bucket is acquisitions, buying things that are already built. Exactly.
• 4:15
  They had income kicking in from Advance 2 in Pune, which they acquired back in March 2024.
• 4:21
  And building Q2 in Mumbai acquired in July, 2024.
• 4:26
  Since those were full year or near full year contributions in 2025,
• 4:30
  they just lifted the overall waterline.
• 4:33
  Okay, so they built stuff, they bought stuff and they raised the rent.
• 4:36
  Classic playbook. But I want to zoom in on the operational health.
• 4:40
  Engine room of the business. There
• 4:42
  was one statistic in the slides that genuinely made me do a double take.
• 4:45
  Let me guess. The rental reversion. The rental reversion.
• 4:48
  Positive 21%. That sounds, I mean, absurdly high. It is remarkably robust.
• 4:54
  Just to clarify for everyone, rental reversion is the difference in rent between
• 4:58
  an old lease that expires and the new lease signed for the same space.
• 5:03
  A 21% jump means that if a tenant leaves or renews, the market price for that
• 5:08
  office space has gone up by a fifth.
• 5:09
  That implies a serious supply and demand imbalance, doesn't it?
• 5:12
  It sounds like landlords are really calling the shots.
• 5:15
  It absolutely does. It tells us that in their key markets, Bangalore,
• 5:18
  Mumbai, Poon demand for high quality IT park space is just outstripping supply.
• 5:24
  Tenants are willing to pay a premium to stay or to get in. You don't see numbers
• 5:27
  like that in markets that are struggling.
• 5:29
  And despite hiking rents by 21 percent, are they scaring people away?
• 5:33
  Apparently not. The committed portfolio occupancy stands at 91%,
• 5:37
  and that figure excludes the logistics and data centers, so it's a pure look
• 5:41
  at their business parks.
• 5:42
  91% is a very healthy number. It gives them leverage.
• 5:45
  If occupancy was sitting at, say, 75%, they wouldn't have the courage to ask for a 21% hike.
• 5:51
  There's another efficiency metric I noticed, the net property income margin, or NPI margin.
• 5:56
  It improved from 74.0% to 76.4%. Ah, this is where the management really earns their keep.
• 6:03
  NPI margin is basically a measure of how much revenue you keep after paying
• 6:07
  property expenses, maintenance, security, utilities.
• 6:11
  Increasing that margin means they aren't just making more money on the top line.
• 6:14
  They're becoming more efficient.
• 6:16
  They're keeping more pennies from every dollar earned. So the engine is running clean and fast.
• 6:22
  But let's shift gears to strategy. I noticed a lot of movement in the portfolio.
• 6:26
  It wasn't just buy and hold. There was some selling going on, too.
• 6:30
  Yes, this is the capital recycling strategy. In September 2025,
• 6:34
  they sold off two significant assets, Cyber Pearl in Hyderabad and Cyber Vale in Chennai.
• 6:40
  They netted about $161.7 million from those sales. Why sell income-producing
• 6:45
  assets if you're trying to grow? That seems a little counterintuitive.
• 6:48
  It's about quality and age. These were likely older assets where the growth
• 6:51
  potential had sort of plateaued.
• 6:53
  By selling them, they unlock cash, and S-161 million dollars is not small change,
• 6:58
  which they can then redirect into higher growth, newer assets.
• 7:01
  It's like trading in a reliable 10-year-old sedan to put a down payment on a
• 7:05
  high-performance electric vehicle.
• 7:06
  Speaking of high-performance vehicles, that brings us to the data centers.
• 7:10
  This seems to be the big pivot in these documents.
• 7:12
  It is the defining strategic shift.
• 7:15
  Clientees aggressively moving into the data center space, They completed Capital
• 7:19
  Land Data Center NaviMumbai Power One and notably began handing it over to a hyperscaler tenant.
• 7:27
  Hyperscaler, that usually means the big tech giants, right? The cloud providers? Precisely.
• 7:31
  Think Amazon Web Services, Microsoft Azure, Google Cloud. These are the gold standard of tenants.
• 7:36
  They sign long leases and they consume massive amounts of power and space.
• 7:40
  But there was an interesting financial twist here. In December 2025,
• 7:45
  Clienty announced they are divesting selling a 20.2% stake in three of their
• 7:49
  data centers to a capital and fund.
• 7:51
  Wait, if data centers are the golden goose, why sell a 20% stake? Why not keep it all?
• 7:55
  Because data centers are incredibly expensive to build. They're very capital intensive.
• 8:00
  The cooling systems, the power backup, the security, it costs a fortune compared
• 8:05
  to a standard office block.
• 8:06
  By selling a 20.2% stake, they bring in a partner to share the cost and the
• 8:12
  risk, while Klinent keeps majority control and the management rights.
• 8:16
  It's a way to grow the portfolio without blowing up their balance sheet.
• 8:19
  It's just smart capital management.
• 8:21
  That phrase capital management keeps popping up, and there was a section in
• 8:23
  the report about on-shoring debt.
• 8:26
  It sounded technically complex, but the report treated it like a huge win.
• 8:30
  Can you unpack that for us? Oh, this is fascinating if you like financial engineering.
• 8:34
  Historically, Clinton borrowed money in Singapore dollars to invest in India.
• 8:38
  But when they pay interest on those loans from India, they have to pay a withholding
• 8:42
  tax of roughly 15% to the Indian government. Ouch.
• 8:45
  That's a hefty tax on just paying your debts. That is debt money. Exactly.
• 8:49
  But if they borrow the money inside India, onshore, or that withholding tax drops to 0%. Zero.
• 8:57
  So in January 2026, just last month, they issued their first ever bond in India,
• 9:02
  raising INR $9.15 billion.
• 9:06
  By swapping their Singapore debt for Indian debt, they saved that 15% tax leakage.
• 9:11
  That seems like a complete no-brainer. Why haven't they always done this?
• 9:14
  Well, you need a deep local credit market to do it, and you need to be trusted.
• 9:18
  The fact that they got a AAA rating from Chris Hill and raised that much money
• 9:22
  shows they've really matured as a local borrower.
• 9:26
  Their goal now is to have 40% to 50% of their debt onshore in the next three to four years.
• 9:30
  It's a major structural improvement for their bottom line. And checking the
• 9:34
  credit card limit, the gearing ratio, where do they scan?
• 9:37
  Gearing is at 39.6%. The regulatory limit for REITs is 50%. So they have plenty of room.
• 9:43
  About S1 billion dollars worth of room, or debt headroom.
• 9:46
  If they see a great building for sale tomorrow, they have the capacity to buy
• 9:50
  it without needing to issue new shares immediately.
• 9:52
  That financial agility is crucial. Let's look forward then. The outlook section.
• 9:57
  I was intrigued by the forward purchase program. It sounds like buying futures
• 10:01
  but for buildings. It's a risk mitigation tool.
• 10:04
  Think of it like ordering a custom suit versus trying to sew it yourself.
• 10:08
  I like that analogy. Go on.
• 10:09
  In a forward purchase, client agrees to buy a building, but only after the developer
• 10:14
  has finished building it and usually leased it out. This removes the construction risk.
• 10:20
  Client doesn't have to worry about cement prices going up, labor strikes, any of that.
• 10:25
  They just step in when the suit is ready to wear. And do they have many of these
• 10:28
  suits on order? They have a very healthy pipeline.
• 10:31
  Six assets are under the forward purchase agreement, totaling 7.3 million square feet.
• 10:37
  That is massive. It provides very clear visibility on future growth.
• 10:41
  We aren't guessing where the growth will come from in 2027 or 2028.
• 10:45
  We could see it on the schedule.
• 10:46
  And beyond the forward purchases, they're also doing some of their own development,
• 10:49
  aren't they? Yes, specifically redevelopment.
• 10:51
  They're taking the Orion building in Hyderabad and redeveloping it,
• 10:55
  targeting completion in 2028.
• 10:56
  And they have new IT blocks coming up in Bangalore MTB 7, completing in 2027.
• 11:02
  So the growth isn't just theoretical, it's literally under construction.
• 11:06
  The report also referenced a market report by CBRE.
• 11:10
  We hear so much news in the West about the death of the office.
• 11:13
  What's the sentiment on the ground in India? The data says people are back.
• 11:18
  Vacancies are decreasing in key micromarkets like Whitefield in Bangalore and Navi Mumbai.
• 11:23
  The report explicitly states that rents are expected to remain stable or rise.
• 11:28
  You have to remember, the work culture and the home environment in India are different.
• 11:33
  For a young engineer, the office offers high-speed internet,
• 11:36
  air conditioning, a collaborative environment, Their return-to-office trend
• 11:40
  in India seems to be sticking.
• 11:42
  It sounds almost too good. We have to look at the other side of the coin. What are the risks?
• 11:46
  What's on the watch list? Well, we can't ignore the macro environment.
• 11:49
  Interest rates are the obvious one.
• 11:50
  While Clienty has done a good job fixing their rates, about 72.6% of their debt is on fixed rates.
• 11:56
  The average cost of debt is still 5.6%. That's not insignificant.
• 12:00
  No, it's not. And if global rates stay higher for longer, that cost could creep
• 12:05
  up as they refinance older, cheaper loans. That eats directly into the distributable
• 12:09
  income. And the currency.
• 12:11
  We touched on it earlier, but it feels like the elephant in the room. It always is with India.
• 12:15
  The Indian rupee grew 12% in revenue terms, but SGD revenue only grew 6%.
• 12:21
  That gap is the depreciation of the rupee.
• 12:24
  If the rupee weakens significantly against the Singapore dollar,
• 12:28
  it eats into the returns for a Singapore-based investor.
• 12:31
  It's a persistent headwind they have to outrun through operational growth.
• 12:35
  So they have to run fast, just stay in the same place? In a way, yes.
• 12:39
  They need that operational growth just to offset any currency slide.
• 12:42
  And I suppose we should mention global economics. Their tenants are mostly U.S.
• 12:46
  And European tech companies. Correct.
• 12:48
  If the U.S. tech sector catches a cold, Indian IT parks sneeze.
• 12:53
  Shifts in demand from those global tenants are a primary risk factor.
• 12:57
  If Google or Microsoft slow down their hiring, they need less space in Bangalore.
• 13:01
  However, the shift to data centers helps diversify that a bit,
• 13:04
  as data consumption tends to grow even during economic slowdowns.
• 13:08
  So let's bring this all together. We have a company delivering 15% DPU growth,
• 13:12
  seeing 21% bumps in rent, and aggressively pivoting into data centers while
• 13:16
  cleaning up their balance sheet with local debt. It's a transition story.
• 13:20
  Klein is evolving. They're moving away from being a passive landlord of generic
• 13:24
  office parks and becoming an active manager of high-spec digital infrastructure.
• 13:29
  The move to recycle capital selling the old to fund the new data centers is the key takeaway for me.
• 13:35
  They aren't asking investors for new money to fund this growth.
• 13:38
  They're finding it within their own portfolio.
• 13:40
  That's a powerful position to be in. It suggests they're self-sustaining.
• 13:44
  It does. It shows discipline. And looking at that 17% jump in income available
• 13:48
  for distribution, that discipline is paying off in cash.
• 13:52
  So here is the provocative thought I want to leave our listeners with today.
• 13:56
  We traditionally think of Clint as an IT park trust, a steady,
• 14:00
  perhaps slightly boring dividend payer.
• 14:03
  But with this aggressive move into data centers, the divestment of older assets...
• 14:08
  Are we watching the slow transformation of Clint from a traditional property
• 14:11
  trust into a digital infrastructure play?
• 14:14
  That is the billion-dollar question, isn't it? Digital infrastructure companies,
• 14:18
  the ones that own cell towers and data centers, they usually trade at much higher
• 14:22
  valuation multiples than office landlords.
• 14:25
  If the market starts valuing Clint Hunt as a digital infrastructure company
• 14:29
  rather than a brick-and-mortar landlord, the stock price could look very different in a few years.
• 14:34
  That is definitely something to mull over. Thank you for joining us on this
• 14:37
  deep dive into the Capital and India Trust FY 2025 results.
• 14:42
  It's been a fascinating look under the hood of the India growth engine.
• 14:45
  Always a pleasure. There's always more to find in the numbers.
• 14:47
  And before we sign off, I need to read our mandatory disclaimer.
• 14:50
  Please listen closely. This content is intended to serve strictly and only as
• 14:55
  an informational, independent, objective summary of recent events and should
• 14:59
  in no way be interpreted, construed
• 15:01
  or relied upon by any party as inside information or financial advice.
• 15:06
  Thanks for listening. We'll catch you on the next Deep Dive.