Following Ascendas Real Estate Investment Trust’s (A-REIT) announcement of its acquisition of 11 data centres in Europe, CGS-CIMB Research analysts Lock Mun Yee and Eing Kar Mei have reiterated their ‘add’ rating for the counter with a higher target price of $3.30 from $3.25 previously.
The analysts note that the acquisition is expected to be value accretive to A-REIT’s distribution per unit (DPU), with an initial property yield of 6% (post-transaction-cost yield of 5.7%).
SEE:Data centre portfolio to strengthen Ascendas REIT
“Management guided that proforma DPU accretion from this transaction is 1.3%, while the blended DPU accretion, including the Australia and US acquisitions in 4QFY2020 ended December 2020 until 1QFY2021 ending March 2021, is 2.4%, in line with its earlier guidance during its equity fundraising exercise,” they say.
The analysts note that the acquisition further diversifies A-REIT’s portfolio, with exposure to data centres increasing to 10% of its total portfolio of $15 billion post-transaction, while overseas properties will now account for 40% of the portfolio.
Besides highlighting that the properties are located in key European data centre markets including London and Paris that enjoy strong capacity growth, the analysts point out that the portfolio also has low expiries of 9.5% and 12.3% in FY2021 and FY2022 respectively.
In addition, 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.
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Lock and Eing reiterate their ‘add’ rating with the higher target price of $3.30 underpinned by DPU estimates for FY2021 to FY2023 raised by 1.35-2.44% to factor in contributions from the new acquisitions.
“We continue to like AREIT for its diversified and resilient portfolio and strong inorganic growth visibility,” they say.
As at 11.39am, shares in A-REIT are up 3 cents or 0.98% higher at $3.08.
