Data centres are the hottest thing right now. And Ascendas REIT is riding on this massive wave.
I wrote about Ascendas REIT sometime back, which you can find here.
Ascendas REIT needs no introduction.
This is one of Singapore’s biggest industrial REIT with a market cap of S$12 billion. In fact, it’s one of the top 30 companies in Singapore.
Just last week, the REIT announced that it bought 11 data centres worth S$960 million, all of it in Europe.
And the recent 11 data centre acquisition puts the REIT under the spotlight again.
Why is Ascendas REIT buying data centres?
Before I get into the details, there’s something you need to know about data centres.
Data centres are a critical piece to today’s world.
More companies are adopting cloud computing to store their data.
There’s a growing number of internet users globally, whether on mobile or desktop and there’s huge demand coming from the “internet of things”, the 5G network revolution and extensive video streaming services.
All these require a place for data storage.
And what’s more important here is, Covid-19 pandemic has amplified the need for data.
You see, data centres act like a home for the internet.
Whether you want to stream a video, upload photos to your social media or write an article online, data centres physically store all these content somewhere. So, when people stayed at home most of the time last year, that’s a lot of data content to be stored somewhere. And data centres are just the place for these stuff.
That’s why Ascendas REIT is getting into the game fast.
According to CBRE Group, a major American commercial property services company, the take-up rate of data centres across the top four data centre markets — Frankfurt, London, Amsterdam and Paris — outstripped new supply in 2020.
More companies are shifting toward digitization. And the occupancy rate of data centres in these big four cities are climbing steadily, from 79% in 2019 to 81% last year.
This is going to improve further to 83% by the end of this year.
These are the very same data centre markets which Ascendas REIT’s 11 data centres are going to be located in.
For me, I think this good for Ascendas REIT to move away from traditional industrial and logistics rental business, largely because many of the tenants that data centres rent out to tend to come from the more stable type of companies like financial services, telecommunications and
Already, some of Ascendas REIT’s big tenants include Singapore Telecommunications, DSO National and Citibank to name a few.
So what I like about Ascendas REIT is it’s diversifying away from its Singapore property portfolio.
After this acquisition, its Singapore properties will contribute less than 60% of the REIT’s total assets.
To me, REITs should function like any investment fund — well diversified across geographies.
Now, after this acquisition, its data centres will contribute 10% of Ascendas REIT’s total assets, with business space, logistics and industrial contributing 47%, 22% and 21% respectively.
And like I’ve mentioned in my previous article, Ascendas REIT is transforming its property mix into fields at the forefront of innovation, and that includes data centres.
Ascendas REIT’s growth has just begun
In its latest financial year 2020, Ascendas REIT’s gross revenues grew a solid 13.6% to S$1 billion, as compared to $924 million last year. While its net property income increased by 9.4% to S$776 million.
All these growth were due to its newly bought properties.
Even during the Covid-19 pandemic, its distribution per unit (DPU) dropped marginally by 6%. What’s more is its overall portfolio occupancy rate is high at 92% and has achieved an overall rise in rental growth of 3.8% during its latest financial year 2020.
While Ascendas REIT has bounced from a slight correction earlier this March, there’s still room for its business to grow as it boosts its data centre footprint across the world.
Ascendas REIT, in my opinion, is one great way to invest in the next internet revolution through a Singapore REIT.
And this is evident by its steady climb in share price over the past five years.
Sometimes, investing can be simple.
Always here for you,
Willie Keng, CFA
Founder, Dividend Titan
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