Ascendas REIT’s DPU for the 2HFY2020 ended Dec 31, 2020, fell by 0.9% y-o-y to 7.418 cents and FY2020’s DPU fell by 6.1% to 14.688 cents largely because of a 13.6% rise in the number of units in FY2020 versus FY2019. The increase in the unit base was due to a private placement in November 2020, and a preferential equity fund raising in December 2020 which together raised $1.19 billion.
Out of the proceeds, $390.0 million was used to partially fund two office properties in San Francisco which together cost $768 million; $180 million part-funded a suburban office in Melbourne which cost $100.6 million, and a potential European acquisition; and approximately $614.0 million will partially fund the acquisition of a data centre portfolio in Europe.
According to a November announcement, these acquisitions would be between 2% and 2.5% accretive to DPU on a pro forma basis had they been completed in April 2019. The US portfolio would be just 0.85% accretive to DPU on the same basis. With loan-to-value ratios of around 50%, analysts have estimated that the data centre portfolio would cost between $1 billion and $1.2 billion. As at Dec 31, 2020, Ascendas REIT’s cost of debt fell to 2.7% from 2.9% as at June 30, 2020, and gearing fell to 32.8% as at Dec 31, 2020, from 36.1% as at June 30.
William Tay, CEO of Ascendas REIT’s manager, says the manager is doing extensive due diligence on the data centre portfolio and should complete soon. He, however, declines to reveal the NPI yield or acquisition capitalisation rate of the portfolio.
“Data centres have been an asset class we owned mainly in Singapore. Based on what we know, in terms of gross floor area, we are one of the largest in the S-REIT space. We will consider developing a data centre if an opportunity comes along, but we need to work with a credible partner. We are still focusing on core and shell. If there is any colocation that comes along with an acquisition target we will look at it,” Tay elaborates during a recent results briefing.
The two geographies that Ascendas REIT will acquire data centres are likely to be in Europe and Singapore. “For data centres, our aspiration is to be in Europe and Singapore and so we [hope] to gain scale in these two jurisdictions,” Tay adds.
In Ascendas REIT’s FY2020 results, it announced a surprise 3.8% increase in rental reversions. This was driven by a 16% growth in rental reversions in the US and 14% growth in rental reversions in Australia. In the US, more than 4.4% of the portfolio by gross rental income (GRI) was renewed in 2020 and in Australia, 5.2% of the portfolio by GRI was renewed.
DPU this year is likely to be driven by acquisition growth. In 2020, Ascendas REIT acquired $973 million of properties, including the two office buildings in San Francisco, which were completed in November 2020, and a suburban office in Melbourne, acquired in September last year. The acquisition of an office property in Macquarie Park was completed in January this year. These acquisitions are likely to boost DPU. Ascendas REIT has yet completed the acquisition of three properties in Australia for $251.2 million of which two are logistics properties and one is an office property in Macquarie Park. All three are under development.
RHB has a “neutral” rating on the stock, but Maybank Kim Eng says Ascendas REIT is its top pick in the sector.
