Ascendas Reit to buy 11 Europe data centres for S$904.6m
ASCENDAS Real Estate Investment Trust (Ascendas Reit) is looking to acquire 11 Europe data centres for S$904.6 million. The purchase will boost the Reit's exposure to data centres to 10 per cent of its total investment properties, from 4 per cent as at Dec 31, 2020.
The purchase consideration comprises £250.3 million (S$460.4 million) for four data centres in the United Kingdom and 276.9 million euros (S$444.3 million) for the remaining data centres: three in the Netherlands, three in France and one in Switzerland.
The vendor of the properties is Digital Realty Trust, a New York-listed data-centre Reit. William Tay, executive director and chief executive of Ascendas Reit's manager, said in a call to reporters and analysts on Wednesday morning following the announcement, that the proposed acquisition is expected to be completed "in the next 12 hours".
Ascendas Reit's purchase consideration is slightly below the independent market valuation, carried out by Newmark Knight Frank Valuation & Advisory, at S$905 million.
DBS Group Research analyst Dale Lai said he believes the transaction "is quite in line with the market".
The manager said the acquisition is expected to be accretive to distributions per unit. Net property income yield for the first year is estimated at 5.7 per cent after factoring in post-transaction costs.
Units of Ascendas Reit closed at S$2.97 on Tuesday, up S$0.02 or 0.7 per cent, implying a yield of 4.3 per cent. The counter was halted on Wednesday ahead of the acquisition announcement.
Mr Tay said there are plans to maintain the mechanical and electrical systems (M&E) of the three co-location data centres in the portfolio, adding that it is necessary to allocate capital expenditure "with the intention to modernise the entire portfolio".
"We have made our assessment with regard to the quality of the assets we are acquiring -- they are all very good assets, between Tier Two and Tier Three, but we recognise that the assets are not brand new, ranging between 10 and 20 years of age," he said.
These plans include improvements to meet sustainability requirements within the various jurisdictions, repositioning certain assets, and looking at opportunities for increasing data halls.
After accounting for an estimated transaction cost of S$55.4 million, the transaction's total cost is S$960 million. Ascendas Reit will finance this with S$612.5 million of the proceeds from an equity fund-raising announced in November and completed on Dec 9.
The remaining S$347.5 million will be funded via debt and/or internal cash resources, and the manager is currently "exploring several options to secure longer-tenure debt".
The 11 data centres have a total net lettable area of 61,637 square metres (sq m). Six data centres sit on freehold land; the remaining five are located on land with a weighted average land lease to expiry of 42.9 years.
The weighted average lease to expiry, measured by gross revenue, is 4.6 years. Around 83 per cent of the leases by rental income have embedded annual rent escalations of between 1 and 3 per cent.
As at Dec 31, the data centres were 97.9 per cent occupied by 14 customers operating in industries such as financial services, telecommunications, information technology, retail and education.
Following completion, Ascendas Reit will have 60 per cent of its investment properties in Singapore, 14 per cent in the United States, 14 per cent in Australia and 12 per cent in Europe.
Investment properties in the business space will make up 47 per cent of the Reit's portfolio in terms of asset value. Logistics and industrial will take up 22 and 21 per cent, respectively.
In response to a query on Ascendas Reit's strategy, Mr Tay said: "We may look like we are all over the place, but there's a thesis behind each of the move... We look at the asset class that supports the driver of the economy in those countries."
Units of Ascendas Reit closed up S$0.08 or 2.69 per cent at S$3.05 on Wednesday. The counter's trading halt had been lifted following the announcement.
