UNITS of Ascendas Real Estate Investment Trust (Ascendas Reit) lost ground on Wednesday after its manager announced it was readying a war chest to acquire data centres and office buildings overseas.

 

The counter dipped almost 7 per cent to an intra-day low of S$2.97 within the first half hour of trading, close to the issue price of S$2.96 announced earlier in the morning for the preferential offering.

 

It then crept up to finish at S$3.03, down 5 per cent or S$0.16 from the previous close. About 45.1 million units changed hands, making Ascendas Reit the third-most actively traded by value on the bourse. Shareinvestor data showed nearly 120 large trades, each valued at over S$150,000, throughout the day.

 

To finance potential and proposed acquisitions in the United States, Europe and Australia, the manager on Tuesday launched a S$1.2 billion equity fundraising.

 

The S$2.96 issue price for the preferential offering to unitholders was fixed at the bottom end of the indicative range and represented a 7.8 per cent discount to the volume-weighted average price (VWAP) of S$3.2096 for trades done on Nov 9 up to the time the underwriting agreement was signed on Nov 10. The preferential offering will be done on the basis of 37 new units for every 1,000 existing units held at Nov 18, 5pm, the manager said on Wednesday.

 

Meanwhile, the private placement was priced at S$3.026, also at the low end of the indicative range, and at a 5.7 per cent discount to the VWAP.

 

Gross proceeds will amount to some S$800 million from the private placement and about S$396.5 million from the preferential offering.

 

The total purchase price for the Europe, Australia and US acquisitions is estimated at S$2 billion, the manager said during a Tuesday Webcast.

 

The proposed US acquisition involves two freehold office properties in San Francisco with a combined price tag of US$560.2 million, to be partially funded with about a third of the fundraising' s proceeds.

 

That translates to a " decent" initial net property income (NPI) yield of 4.9 per cent, before transaction costs, said OCBC Investment Research.

 

OCBC also noted that the properties are located in the South of Market (SoMa) submarket - the epicentre of San Francisco' s technology industry - which is expected to benefit from the likely increase in tech employment. Maybank Kim Eng (MKE) said strong demand growth and capped new supply till 2030 should underpin growth in SoMa' s occupancies and rents.

 

The Reit manager had indicated that the two US properties are under-rented by 5-25 per cent - MKE said this suggests that higher NPI yields of 6 per cent, up from 4.9 per cent, are achievable. The triple-net leases are embedded with rental escalations of 2-3 per cent per annum.

 

One building is fully leased to payments giant Stripe with a seven-year weighted average lease expiry (WALE), while the other is fully leased to image-sharing platform Pinterest with a 12.4-year WALE. The long WALEs with no termination clauses will mitigate concerns of the impact and trend of employees working from home, according to OCBC.

 

In Europe, Ascendas Reit is eyeing a portfolio of large-scale data centres, including triple-net powered shells and operational turnkey data centres, which the manager expects to acquire at " attractive property yields" . If successful, the deal will raise the Reit' s data-centre exposure to 10 per cent from 4 per cent.

 

About half of the fundraising' s proceeds will partly finance the Europe purchase while another S$180 million will be used for the potential acquisition of a suburban office property in a Tier 1 city in Australia.

 

MKE said the Reit' s fundamentals remained strong, backed by its scale, visibility of distribution per unit and further overseas diversification. The brokerage maintained its " buy" call and S$4.00 price target.

 

CGS-CIMB retained its earnings estimates, " add" rating and target price of S$3.20, pending details on the Europe and Australia deals. " We continue to like Ascendas Reit for its resilient and diversified portfolio and strong inorganic growth visibility."

 

OCBC likewise sees benefits from the trust' s wide geographical footprint. The acquisitions will further diversify its income streams, OCBC noted, keeping its fair-value estimate of S$3.92 and " buy" call.