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Simons Trading Research

Author: simonsg   |   Latest post: Tue, 13 Jul 2021, 12:12 PM

 

Ascendas REIT - Venturing Into European Data Centre Market

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  • 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 Acquires 11 European Data Centres

  • 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.

Properties Are Well Located in Key European Data Centre Markets

  • 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.

Acquisition Is DPU Accretive

  • At an initial property yield of 6% (post-transaction-cost yield of 5.7%), the deal is expected to be DPU 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.

Reiterate ADD Rating on Ascendas REIT

  • We raise our Ascendas REIT's FY21-23F DPU estimates by 1.35-2.44% to factor in contributions from 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.
  • Potential re-rating catalysts include a protracted economic downturn.

Source: CGS-CIMB Research - 17 Mar 2021

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Ascendas Reit 3.05 -0.01 (0.33%) 2,716 

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