Keppel DC REIT - CGS-CIMB Research 2020-07-21: Acquisitions Drive Strong Results


Keppel DC REIT - Acquisitions Drive Strong Results

  • Keppel DC REIT’s 1HFY20 DPU of 4.38 Scts came in at 46% of our FY20F DPU.
  • We raise our FY21-22F DPU by 4-4.5% and roll over our FY21 Target Price to S$2.88 as we factor in acquisitions (S$300m) and reduce our COE assumption.
  • Reiterate HOLD as we believe the market has priced in the strong demand.

Keppel DC REIT's 1HFY20 DPU came in within expectations

  • Keppel DC REIT (SGX:AJBU)’s 1HFY20 DPU of 4.38 Scts (+13.6% y-o-y) came in within our expectations at 46% of our full-year forecast. 1HFY20 revenue increased 29.8% y-o-y to S$124m while NPI was up 32.1% y-o-y to S$114.2m.
  • The strong set of results was mainly driven by the acquisition of SGP 4 and DC1 in 4Q19 as well as Kelsterbach DC in May 2020.

Healthy operating metrics

  • Keppel DC REIT’s portfolio occupancy remained healthy at 96.1% with a long WALE of 7.4 years. It has 2.6% of NLA up for renewal in 2H20. It has started to engage clients for early renewals and brought down the total expiring NLA in 2021 from 10.7% as at end- 2019 to 6.2% in Jun 2020.
  • We understand that rental rates were renewed at flat to slightly positive reversion. While data centres are in high demand, the REIT values the long-term relationship with its customers more.

Ongoing AEIs to drive organic growth

  • Keppel DC REIT has a few ongoing AEIs. The AEI at Dublin 1 has resumed and is expected to be completed in 2H20, subject to further delays caused by the pandemic. It has also commenced works to convert additional space at Dublin 2 into a data hall with expected completion in 1H21.
  • However, in Singapore, AEI at SGP5 and DC1 remain suspended. The DCs were originally scheduled to be completed in 2H20. The additional power capacity at SGP 5 has been fully committed by an existing client.
  • As for Dub 1 and Dub 2, Keppel DC REIT is in talks with potential clients to take up the additional power capacity.

Close to finalising an acquisition

  • On the acquisition front, we understand that Keppel DC REIT is close to finalising a deal which could happen as soon as 3Q. The REIT is evaluating a wide range of deals which include new and existing countries with cap rates in the range of 4-7%. As the sponsor’s assets will not be ready in 2020, acquisitions in 2020 will be from third-parties.
  • We factored in a S$300m acquisition at 6.5% yield at 30:70 debt:equity funding into our FY21-22 DPU forecasts. Keppel DC REIT’s gearing remains low at 34.5% with debt headroom of S$284m at 40% gearing and S$950m at 50% gearing limit.

Maintain HOLD

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-07-21
SGX Stock Analyst Report HOLD DOWNGRADE BUY 2.88 UP 2.170