Keppel DC REIT - OCBC Investment 2021-01-27: More Good Things To Come


Keppel DC REIT - More Good Things To Come

  • Keppel DC REIT's 2H20 and FY20 DPU jumped 27.5% and 20.5% y-o-y, respectively.
  • Occupancy improved further.
  • Small acquisition announced with more likely to come.

Keppel DC REIT's FY20 results met our expectations

  • Keppel DC REIT (SGX:AJBU) reported its FY20 results which came in within our expectations. See Keppel DC REIT's nnouncements.
  • For 2HFY20, Keppel DC REIT's revenue and NPI jumped 42.6% and 43.1% y-o-y to S$141.6m and S$129.9m, respectively, while DPU grew 27.5% to S$0.04795. This culminated in full-year FY20 NPI and distribution of S$244.2m and S$0.0917/unit, representing robust growth of 37.7% and 20.5%, respectively. The latter accounted for 101.2% of our forecast.

Higher occupancy supported by robust industry outlook

  • Keppel DC REIT’s portfolio occupancy rose 1.1 percentage points (ppt) q-o-q to 97.8% (as at 31 Dec 2020). This was driven largely by higher take-up at Keppel DC Singapore 1 (+1.9 ppt), Keppel DC Singapore 2 (+4.7 ppt), Keppel DC Singapore 5 (+15.8 ppt) and Keppel DC Dublin 1 (+17.9 ppt). This ramp up in occupancy was supported by robust industry trends, such as higher enterprise spending on cloud infrastructure.
  • Although no rental reversion figures were disclosed, management highlighted that it has seen higher asking rents in the market, and rents in Singapore are likely to gain further traction in 2H21.
  • Keppel DC REIT’s portfolio saw cap rate compression from 5.5-10.25% in FY19 to 4.95-10.12% in FY20. This resulted in modest revaluation gains of S$25.6m (excluding straight-lining effects of rental income recognition).

One small acquisition in Amsterdam; more likely to come

  • Keppel DC REIT also announced a small acquisition of a data centre and office facility in Amsterdam, the Netherlands, for EUR30m (~S$48.1m). This freehold property has an occupancy of 99.1%, and is expected to generate an initial NPI yield of 5.1%. While this yield is tighter than Keppel DC REIT’s historical acquisition cap rates, management alluded that Amsterdam has one of the lowest cap rates for data centres globally, coupled with the fact that this is a shell and core asset.
  • Keppel DC REIT also said that it was still evaluating a large pipeline of potential deals, with estimated NPI yields likely to be well above 5.1%. Any acquisitions are also expected to be DPU accretive even if an equity-to-debt ratio of 70/30% was adopted as funding structure.
  • 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.
  • After adjustments and rolling forward our valuations, our fair value estimate increases from S$3.41 to S$3.51.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2021-01-27
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