Ascendas REIT - Maybank Kim Eng 2021-03-17: Expanding The Data Plan

ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)

Ascendas REIT - Expanding The Data Plan

Ascendas REIT (SGX:A17U) has accelerated its overseas diversification efforts with its latest acquisition of an 11-asset S$904.6m European data centres portfolio. See Ascendas REIT's announcement. The deal was widely anticipated following the S$1.2b equity fund raising in Nov 2020, which together with the San Francisco Grade A offices and Australian suburban office deals result in a +2.4% DPU accretion, in line with +2 to +2.5% guidance.
Beyond the immediate DPU lift, we see strong tailwinds for data centres supporting Ascendas REIT’s plans to scale up in this asset class, now at 10% of its AUM (from 4%).

Ascendas REIT's fundamentals are sound with its more resilient AUM profile, backed by rising DPU visibility, and growth levers from a strong balance sheet. BUY.

Ascendas REIT will acquire a portfolio comprising 11 data centres (8 triple net powered shell and 3 colocation assets) from Digital Realty Trust. The properties are 97.9% occupied, and command a 4.6-year WALE, with ~83% of leases (by rental income) embedded with 1.0-3.0% pa rent escalations.
The valuation implies a 6.0% NPI yield (pre-cost) and 5.7% (post-cost), with cap rates ranging between 5.6-6.5%, against market transactions at 4-7%. This likely reflects the assets’ location, with 9 in London, Amsterdam and Paris, (which together with Frankfurt, collectively referred to as FLAP), rank as Europe’s 4 largest colocation markets.
See the portfolio details in Fig7 of report attached below.

Data Centres remain an attractive asset class in our view and backed by favourable fundamentals, with the take-up of colocation properties in 2020 at 201MW (+84% y-o-y) surpassing 174MW (+139% y-o-y) in new supply across the FLAP markets, according to CBRE.
We see tailwinds from rising consumption of cloud services and colocation demand, as enterprises scale up IT needs and digitalisation efforts. Strong market absorption at 2.4 years in 2020 (from 3.0 years in 2019) should support further improvement in vacancies in 2021 to 17% (from 19% in 2020 and 21% in 2019).

The deal adds 1.3% to Ascendas REIT's DPU and lifts its AUM by 7.1% to S$15.0b. Contribution from UK/ Europe rises from 6% to 12%, while freehold assets increase from 35.4% to 37.5%.
Support from its sponsor’s local data centre team and a 1-year facilities management transition from vendor should mitigate near-term execution risks, given 42% of leases are for colocation assets.
See Ascendas REIT Share Price; Ascendas REIT Target Price; Ascendas REIT Analyst Reports; Ascendas REIT Dividend History; Ascendas REIT Announcements; Ascendas REIT Latest News.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-03-17

SGX Stock Analyst Report BUY MAINTAIN BUY 3.60 SAME 3.60