Brokers' take: Analysts raise target prices on Ascendas Reit post UK acquisition

UOB Kay Hian (UOBKH) and CGS-CIMB have raised their target prices on Ascendas Real Estate Investment Trust (Ascendas Reit) while reiterating their respective "buy" and high-conviction "add" calls.

This comes after the Reit on Wednesday announced its S$904.6 million acquisition of 11 data centres in Europe, which will boost the Reit's exposure to data centres to 10 per cent of its total investment properties, from just 4 per cent as at Dec 31, 2020.

In a Thursday report, UOBKH analyst Jonathan Koh opined that the acquisition has "injected a new dimension for growth" for Ascendas Reit.

The research house now has a higher target price of S$3.82 for the Reit compared to S$3.68 previously, after its FY2022 distribution per unit (DPU) forecast was raised by 4.1 per cent to factor in full-year contributions from the data centres in Europe.

In Mr Koh's view, there is room for the recently acquired data centres to undergo asset enhancements through the potential repositioning of powered shell data centres into co-location centres, or the possible conversion of ancillary office space into data halls.

He also assumes that the acquisition has been fully funded by additional borrowings, given that the Reit recently completed equity fundraising ahead of the deal.

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"London, Amsterdam and Paris are key co-location markets in Europe with vacancy rates projected to fall due to strong take-up for co-location data centres. The expansion increases (Ascendas Reit's) tenant base, asset type and geographical diversification," said Mr Koh.

Meanwhile, CGS-CIMB has raised its target price on the Reit to S$3.30 from S$3.25 previously. The research house's FY2021-2023 DPU estimates were lifted by 1.35 to 2.44 per cent after factoring in the recent data centre acquisitions.

"We continue to like Ascendas Reit for its diversified and resilient portfolio and strong inorganic growth visibility," said its analysts in a separate report on Wednesday.

They are convinced the Reit's newly acquired portfolio is well located, as nine of the 11 properties are 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 per cent and 12.3 per cent in FY2021F and FY2022F, respectively," noted the analysts.

Units of Ascendas Reit were 0.66 per cent or two Singapore cents higher at S$3.07 at Thursday's close.