Ascendas REIT - CGS-CIMB Research 2020-11-10: Acquisitions Galore

ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)

Ascendas REIT - Acquisitions Galore

Proposed acquisition of US properties, potential purchases in Europe and Australia.
Ascendas REIT announced S$1,200m equity fund raising to part fund these purchases.
Reiterate ADD with unchanged DDM-based Target Price.

Ascendas REIT (SGX:A17U) has announced the proposed acquisition of two US office properties as well as potential purchase of a portfolio of data centres in Europe and a suburban office in Australia. The latter two are subject to completion of negotiations with vendors and satisfactory due diligence.
To part fund these purchases, Ascendas REIT has announced a proposed equity fund raising of S$1,200m, comprising a S$800m private placement of 256.329m-264.376m new units priced at S$3.026-3.121/unit and a c.$400m pro-rata non-renounceable preferential offering of up to 133.949 new units priced at S$2.96- 3.05/unit.

The US acquisition comprises two office properties – 510 Townsend St and 505 Brannan St, located in the South of Market (SoMa) submarket of San Francisco. The two buildings have a total net lettable area of 41,372 sqm and are fully leased to two high quality technology tenants, Stripe and Pinterest, for a long weighted average lease expiry (WALE) of 9.1 years. The total acquisition cost amounts to US$572.1m (S$784.3m).
While the acquisition NPI yield is 4.9%, management indicated that these properties are currently under-rented. The acquisition is in line with Ascendas REIT’s growth strategy and increases its exposure to a strategic location in San Francisco while strengthening its US portfolio with newly completed properties with high occupancies.
Post-acquisition, we expect Ascendas REIT’s AUM to expand to S$13.75bn of which 66% are in Singapore and the remaining 34% overseas.

While not much details have been provided, the potential Europe acquisition will allow Ascendas REIT to gain exposure to a portfolio of large scale European data centres located in Tier 1 data centre hubs across Europe. These properties include a mix of triple net powered shells and operational turnkey data centres.
In addition, the potential Australia acquisition includes a suburban office property located in a Tier 1 city in Australia.
Management expects the US, Europe and Australia acquisitions to be DPU accretive. In terms of pro-forma financial impact, according to the management, the US, Europe and Australia purchases could result in a 2-2.5% DPU accretion (+0.85% for the US acquisition only), assuming the acquisitions were completed on 1 Apr 2019.

We retain our earnings estimates and DDM-based Target Price pending more information on the Europe and Australia acquisitions. We continue to like Ascendas REIT for its resilient and diversified portfolio and strong inorganic growth visibility.
See Ascendas REIT Share Price; Ascendas REIT Target Price; Ascendas REIT Analyst Reports; Ascendas REIT Dividend History; Ascendas REIT Announcements; Ascendas REIT Latest News.
Potential upside catalysts include faster-than-expected global recovery.
Downside risk: protracted downturn due to COVID-19.
See also the recent result note: Ascendas REIT - CGS-CIMB Research 2020-10-26: Higher Portfolio Occupancy In 3Q.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-11-10

SGX Stock Analyst Report ADD MAINTAIN ADD 3.200 SAME 3.200