Keppel DC REIT - OCBC Investment 2020-10-21: Another Solid Performance

KEPPEL DC REIT (SGX:AJBU)

Keppel DC REIT - Another Solid Performance

Keppel DC REIT's 3Q20 DPU jumped 22.1% y-o-y.
Occupancy inched up to 96.7%.
Included into Straits Times Index with effect from 19 Oct; awaiting acquisitions as next re-rating catalyst.

Keppel DC REIT (SGX:AJBU) provided a business update for 3Q20. Revenue and NPI surged 46.0% and 47.6% y-o-y to S$67.7m and S$62.4m, respectively, while DPU grew 22.1% to 2.357 S cents.
For 9M20, Keppel DC REIT’s NPI wasup 37.1% to S$176.6m, and DPU rose 16.5% to 6.732 S cents, with the latter forming 76.9% of our FY20 forecast.

Keppel DC REIT’s portfolio occupancy improved 0.6 ppt q-o-q to 96.7% (as at 30 Sep 2020). This was driven largely by Keppel DC Dublin 1, which secured a new client and thus boosted the property’s occupancy by 17.8 ppt to 81.1%.
Keppel DC REIT’s proactive leasing efforts and robust industry outlook has led to a further ramp up in its portfolio occupancy rate after the quarter end, underpinned by Keppel DC Singapore 1 (+1.8 ppt to 91.0% due to client expansion) and Keppel DC Singapore 2 (+4.7 ppt to 98.2% due to new client). This came from the same tenant from the telecom sector due to 5G deployment.
Rental reversions were more mixed, with half in the positive territory, some coming in negative and the rest flat.

We had flagged Keppel DC REIT’s potential inclusion into the Straits Times Index (STI) as a re-rating catalyst in our report dated 5 Oct. This did materialise and came into effect from 19 Oct. We now await acquisitions as the next catalyst for Keppel DC REIT's share price.
Management highlighted that it continues to work hardon this front, with the main impediment being delays caused by the COVID-19 pandemic. It continues to see market cap rates ranging from 4.5-7%, but we believe acquisitions by Keppel DC REIT would likely come in closer to the 6% handle.
While cap rates have compressed in the industry, we understand that vendors that Keppel DC REIT had been in negotiationwith have not raised their asking prices.
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.
In terms of outlook, Keppel DC REIT sees potential rental rate hikes in the next two years, especially in countries with low upcoming supplysuch as Singapore, Ireland, Germanyand the Netherlands. We boost our FY20F and FY21F DPU forecasts by 3.6% and 2.6%, respectively. Consequently, our fair value estimate increases from S$3.32 to S$3.41.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2020-10-21

SGX Stock Analyst Report BUY MAINTAIN BUY 3.41 UP 3.32