Ascendas Reit shells out S$904.6m for Europe data centres

• Ascendas Reit (SGX: A17U) share price rises 0.7% to S$43.07 a share
• It is venturing into the European data-centre market with a S$904.6 million deal
• The manager is eyeing other acquisition growth opportunities in this sector
• Trade Ascendas Reit stocks with an IG account

Debut acquisition of Europe data centres

Units of Ascendas Reit (A-Reit) climbed 0.7% to finish Thursday at S$3.07, sustaining an uptrend that began last week. The stock has risen 7.7% since last Tuesday (09 March 2021).

The latest jump in share price came after A-Reit made its foray into European data centres by acquiring a portfolio of 11 assets for S$904.6 million.

The assets are located across major markets: four in the UK, three in the Netherlands, three in France, and one in Switzerland.

William Tay, CEO of Ascendas Reit’s manager, said on Wednesday (17 March 2021) that these data centres complement the trust’s existing portfolio of data centres in Singapore. As of end-2020, the European portfolio was 97.9% occupied, by 14 customers in a range of industries such as financial services, telecommunications, supermarkets, and education.

With the deal, data centres make up 10% of A-Reit’s total investment properties under management, scaling up from the current 4%.

Net property income for the first year of acquisition is about 5.7% post-transaction costs. Assuming the acquisition was completed on 01 January 2020, its pro forma impact on distribution per unit (DPU) for 2020 is expected to be an improvement of S$0.00189.

Why do analysts like A-Reit's latest investment?

Jefferies’ Krishna Guha said the deal boosts A-Reit’s presence in a resilient asset class with favourable medium-to-long term dynamics.

‘The accretion and diversification augurs well, especially when existing industrial assets may face higher vacancy,’ Guha wrote, rating A-Reit ‘buy’ with a S$3.55 target price.

The European data centres are 10-20 years old and will need capital expenditure to meet sustainability requirements and/or repositioning. However, robust demand and its city-fringe location - and hence lower latency - may result in higher rents, Jefferies opined.

CIMB’s research team said the properties are ‘well located’, with nine in key data-centre markets of Frankfurt, London, Amsterdam, and Paris, which ‘enjoy strong capacity growth’.

The CIMB analysts like A-Reit for its diversified and resilient portfolio, and strong inorganic growth visibility. They reiterated ‘add’ and increased their target to S$3.30, from S$3.25.

Brandon Lee from Citi said the latest acquisition should enable A-Reit to ride on the structural trend of accelerating digitalisation in the top data-centre markets. DPU accretion will be 1.3%, and this should grow with 1-3% annual rent escalations, Lee added.

A-Reit’s Tay said there is ‘good potential’ in the data-centre business, and the trust will continue to make further acquisitions when opportunities arise.

As its overseas assets under management’s contribution has reached the upper end of the targeted 30-40%, Citi expects the next acquisitions to be in Singapore, including A-Reit sponsor CapitaLand’s (SGX: C31) S$1.6 billion industrial portfolio. ‘We see potential redevelopment of older properties in Science Park as a major catalyst,’ Lee wrote.

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