Ascendas REIT - CGS-CIMB Research 2021-03-17: Venturing Into European Data Centre Market

ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)

Ascendas REIT - Venturing Into European Data Centre Market

Ascendas REIT announced its maiden acquisition of 11 European data centres (DCs) for S$904.6m.
The transaction is DPU accretive for Ascendas REIT and increases its data centre exposure to 10% of its portfolio value.
Reiterate ADD rating, with a higher DDM-based target price of S$3.30.

Ascendas REIT (SGX:A17U) announced the proposed acquisition of a portfolio of 11 data centres (DCs), located in the UK, Netherlands, France and Switzerland, for S$904.6m.
The portfolio has a total net lettable area of 61,637 sq m and is 97.9% occupied, with a weighted average lease to expiry (WALE) of 4.6 years. The properties are tenanted by 14 customers in the financial services, telecom, IT, retail and education sectors.
An estimated 83% of the leases by rental income have in-built rental escalations of between 1% and 3% p.a., while 58% of the leases by rental income are on triple net lease structures.

The portfolio is well located, with 9 of the 11 DCs in key European data centre markets of Frankfurt, London, Amsterdam and Paris.
According to property consultant CBRE, these markets enjoy strong capacity growth, driven by robust take-up and declining vacancy levels. The portfolio also has low expiries of 9.5% and 12.3% in FY21F and FY22F, respectively.
Post-acquisition, Ascendas REIT’s portfolio will be further diversified, with overseas properties accounting for 40% of its expanded portfolio value of S$15bn, while its data centre exposure would increase to 10% of its portfolio value.

At an initial property yield of 6% (post-transaction-cost yield of 5.7%), the deal is expected to be DPU accretive. Ascendas REIT's management guided that proforma DPU accretion from this transaction is 1.3%, while the blended DPU accretion, including the Australia and US acquisitions in 4Q20-1Q21, is 2.4%, in line with its earlier guidance during its equity fundraising exercise.
Ascendas REIT intends to finance the total transaction cost of S$960m with S$347.5m of debt and the remainder by proceeds from its earlier equity fundraising.
Post-purchase, Ascendas REIT’s leverage is expected to increase to 37.1%.
In terms of strategy, Ascendas REIT indicated that it sees good potential in the data centre business and will continue to look for acquisition growth opportunities within this sector.

We raise our Ascendas REIT's FY21-23F DPU estimates by 1.35-2.44% to factor in contributions from the new data centres acquisitions. Consequently, our DDM-based target price for Ascendas REIT is lifted to S$3.30.
We continue to like Ascendas REIT for its diversified and resilient 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 re-rating catalysts include a faster-than-expected global recovery and accretive itions.
Downside risks include a protracted economic downturn.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-03-17

SGX Stock Analyst Report ADD MAINTAIN ADD 3.30 UP 3.250