KEPPEL DC REIT (SGX:AJBU)
Keppel DC REIT - Another Quarter, Another Affirmation Of Quality
- Keppel DC REIT's 1H20 DPU grew 13.6% y-o-y.
- Portfolio occupancy improved to 96.1%.
- Raise Fair Value to S$2.86.
Keppel DC REIT's 1H20 results met our expectations
- Keppel DC REIT (SGX:AJBU)’s 1H20 results came in within our expectations. Gross revenue and NPI jumped 29.8% and 32.1% y-o-y to S$124.0m and S$114.2m, respectively. This was driven largely by inorganic growth from acquisitions.
- Keppel DC REIT's DPU rose 13.6% y-o-y to 4.375 S cents, and this formed 50.0% of our FY20 forecast.
Healthy and defensive operating metrics
- Operationally, Keppel DC REIT’s portfolio occupancy saw an improvement of 1.4 ppt q-o-q to 96.1%. This was due largely to the inclusion of the 100%-occupied Kelsterbach Data Centre into its portfolio following the completion of the acquisition, but partially offset by a slight decline in occupancy (-2.5 ppt q-o-q) at Keppel DC Dublin 1 to 63.3%.
- Overall portfolio WALE remains healthy at 7.4 years, with only 2.6% and 6.2% of leases expiring in 2H20 and 2021, respectively.
Ample room for inorganic growth ahead
- Keppel DC REIT’s financial position remains solid, with an aggregate leverage ratio of 34.5% and high interest coverage ratio of 12.8x. We estimate that it has ample debt headroom of S$284m and S$590m before reaching an aggregate leverage ratio of 40% and 45%, respectively.
- Given the compression in Keppel DC REIT’s distribution yield, this also makes it favourable for management to fund DPU accretive acquisitions with a mixture of both debt and equity. We understand that Keppel DC REIT is currently targeting acquisition cap rates of 6.5% and above for the deals which it is evaluating.
- We lower our cost of equity assumption from 6.4% to 5.8% to align with our recent reduction in discount rate assumptions for REITs in more resilient sub-sectors, such as Mapletree Industrial Trust (SGX:ME8U) and Mapletree Logistics Trust (SGX:M44U). However, we also lower our terminal growth rate assumption by 25 bps to 2.5% to take into account potentially stronger competition for data centre assets in the longer-term.
- Our fair value estimate increases from S$2.54 to S$2.86.
- See Keppel DC REIT Share Price; Keppel DC REIT Target Price; Keppel DC REIT Analyst Reports; Keppel DC REIT Dividend History; Keppel DC REIT Announcements; Keppel DC REIT Latest News.
OCBC Research Team
OCBC Investment Research
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https://www.iocbc.com/
2020-07-22
SGX Stock
Analyst Report
2.86
UP
2.540
