Keppel DC REIT - CGS-CIMB Research 2021-01-26: Good Prospects But Priced In


Keppel DC REIT - Good Prospects But Priced In

  • Keppel DC REIT’s FY20 DPU of S$0.0917 (+20.5% y-o-y) came in line with our forecast, driven by acquisitions and higher occupancy (+2.9% points y-o-y).
  • Acquired S$48m data centre in Amsterdam in Dec 20. Strong pipeline ahead.
  • Prospects remain strong but believe market has priced in. Maintain HOLD.

Stronger revenue driven by acquisitions; occupancy improved y-o-y

  • Keppel DC REIT (SGX:AJBU)’s FY20 distribution of S$0.0917/unit (+20.5% y-o-y) came in within our expectations at 97.3% of our full-year forecast. FY20 revenue increased 36.3% y-o-y to S$265.6m, while NPI was up 37.7% y-o-y to S$244.2m. See Keppel DC REIT's announcements.
  • The strong set of results was mainly due to a full year’s contribution from SGP4, DC1 and the acquisition of Kelsterbach DC.
  • Keppel DC REIT's portfolio occupancy remained healthy at 97.8% with a long WALE of 6.8 years. We understand that leases were renewed at negative to positive rental reversion in FY20. It has 7% of NLA up for renewal in 2021 and the REIT does not expect any non-renewals.
  • We understand that demand for data centre in Singapore remains strong and management expects available supply to be tight towards year-end, which bodes well for rental rates.

Remaining AEIs on track to complete

  • Keppel DC REIT has completed the fit out of a new data hall at Keppel DC Singapore 5 and handed to clients in Dec 2020 which pushed occupancy rate from 84.2% in Sep 2020 to 100%. The development of IC3 in Sydney is on track to complete by 1H2021. AEIs at DC 1 (fitting out shell & core for client expansion) and Dublin 2 (converting additional space into a data hall) are also on track to complete by 1Q2021 and 1H2021 respectively.
  • We understand there are no new AEIs in the immediate term given the high occupancy.

Made its first acquisition since COVID-19; see strong pipeline ahead

  • Keppel DC REIT made its first acquisition since the COVID-19 outbreak with the purchase of a data centre in Amsterdam for €30m (~S$48.1m) at a NPI yield of 5.1%. The acquisition will be funded with euro-denominated loans. The new data centre is on a double-net lease while the majority of the office spaces are leased to the data centre and IT services firms.
  • After ironing out the difficulties of acquisitions due to COVID-19, Keppel DC REIT is seeing a smoother acquisition process now. We understand there is a strong pipeline of assets for acquisition and they are predominately fully-fitted and colocation assets with higher cap rates (5% to 7%) versus shell & core assets. The focus will still be acquiring from third parties given that the sponsor’s asset may only be ready by the end of the year.

Maintain HOLD

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2021-01-26
SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.86 DOWN 2.880