SINGAPORE (Jan 2): DBS Group Research is upgrading to a “Buy” call from its previous “Hold” rating for Ascendas India Trust (AIT).

DBS says the REIT’s portfolio across India will now be more diversified after it announced the acquisition of BlueRidge Phase II in Pune.

The house has also increased its target price to $0.87 from $0.81.

AIT said it will initially subscribe for INR2.6billion ($54 million) worth of Non-Convertible Debentures (NCDs) to help fund the construction of the IT property in Pune, which is 80% completed and scheduled for completion by 2H15.

AIT will then acquire the property in Pune if the minimum leasing threshold of 65% is met on Dec 31 2016, at no more than of INR6.4 billion ($133 million) or at an estimated 10-11% NPI yield.

The acquisition will be funded through existing cash and additional bank debt.

In a report released today, DBS says AIT has enlarged its portfolio to 9 million sq ft from 7.5 million sq ft with its latest acquisition, diversifying its reach across four key Indian cities of Chennai, Hyderabad, Bangalore and Pune.

This means AIT will be well-positioned to leverage on India’s dominance in the IT and IT Enabled Service outsourcing segments in Pune, says the house.

DBS notes that AIT is shielded from potential downside as it has the right to call for repayment of the NCDs in the event the property fails to meet the minimum 65% leasing threshold then.

DBS adds, “Imputing the NCDs which will pay a coupon higher than AIT’s existing debt and our latest DBS/INR forecasts, we lift FY15-17F DPU by 1-8% and our DDM-based TP to $0.87 from $0.81.”

There is also a further 1% and $0.01 upside to the forecast FY17 DPU and target price, if the property is acquired at maximum price of INR6.4 billion.

DBS believes that AIT is well positioned to acquire more properties, given a healthy 6% DPU CAGR over the next three years and low gearing.

AIT closed higher 2.44% at $0.84 today.