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


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.

Proposed acquisitions in US, Europe and Australia; fund raising

  • 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.

Diversifying and strengthening US portfolio

  • 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.

Acquisitions expected to be DPU accretive

  • 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.

Reiterate ADD rating

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