ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)
Ascendas REIT - Strengthening Its Portfolio Composition
- Recently completed the acquisition of a portfolio of 11 data centres in Europe.
- Data centres now form ~10% of Ascendas REIT's AUM.
- Room for further inorganic growth and portfolio reconstitution.
Recently penetrated into the European data centre market
- Ascendas REIT (SGX:A17U) recently completed the acquisition of a portfolio of 11 data centres in mid- Mar this year for a total purchase consideration of ~S$904.6m. Four of the data centres are located in the UK, three each are in the Netherlands and France and one is in Switzerland.
- Following this acquisition, data centres would form approximately 10% of Ascendas REIT’s AUM (previously 4%), thus allowing Ascendas REIT to increase its exposure to secular growth trends of increasing cloud adoption and digitalisation.
- Overseas assets would constitute ~40% of Ascendas REIT’s total asset value (+4 percentage points) and the proportion of freehold assets has increased from 35.4% to 37.5% as a result of this development.
Decent NPI yield of 6%, but additional capex likely needed
- According to Ascendas REIT, the newly acquired portfolio is expected to generate an initial NPI yield of 6.0% (5.7% post-transaction costs), which we believe is decent relative to market yields of 4-7%. However, we understand that the assets are around 10-20 years old, and hence additional capex is likely required to enhance the assets in the future, although no guidance on the potential quantum was provided.
- The portfolio has a high occupancy rate of 97.9%, with only 9.5% and 12.3% of leases (by rental income) expiring in 2021 and 2022, respectively (WALE of 4.6 years as at 31 Dec 2020). There are also annual rental escalations of 1-3% for 83% of the portfolio, thus providing further earnings visibility.
Room for further inorganic growth and portfolio reconstitution
- Ascendas REIT’s pro forma aggregate leverage ratio is expected to increase from 32.8% to 37.1% after this acquisition. It had already carried out an equity fund raising exercise in late 2020 in anticipation of this acquisition and hence there will not be a need for further equity fund raising.
- We expect management to continue to seek inorganic growth opportunities given its still healthy gearing ratio. The potential redevelopment of Ascendas REIT’s Science Parks portfolio in Singapore also provides another avenue for it to value add to unitholders over the medium to longer term.
FY21F and FY22F DPU forecasts by 2.2% and 1.8%
- After factoring in the aforementioned acquisition in our model, we raise our Ascendas REIT's FY21F and FY22F DPU forecasts by 2.2% and 1.8%, respectively. We also increase our risk-free rate assumption from 1.55% to 1.9% given the spike in sovereign bond yields. Correspondingly, our fair value estimate is trimmed from S$3.89 to S$3.84.
- Based on Ascendas REIT’s closing price on 8 Apr 2021, it offers active FY21F distribution yield of 5.2%.
- See Ascendas REIT Share Price; Ascendas REIT Target Price; Ascendas REIT Analyst Reports; Ascendas REIT Dividend History; Ascendas REIT Announcements; Ascendas REIT Latest News.
OCBC Research Team
OCBC Investment Research
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https://www.iocbc.com/
2021-04-09
SGX Stock
Analyst Report
3.84
DOWN
3.920
