Keppel DC REIT 1Q21 Operational Update - DBS Research 2021-04-21: Still On The Hunt For An Acquisition

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KEPPEL DC REIT (SGX:AJBU)

Keppel DC REIT 1Q21 Operational Update - Still On The Hunt For An Acquisition

• Keppel DC REIT (SGX:AJBU)'s 1Q21 results in-line; DPU of S$0.0246 is a 1.0% improvement q-o-q.
• Key positives:
  1. higher DI from acquisition of Amsterdam Data Centre in December 2020,
  2. maintained healthy portfolio occupancy of 97.8%,
  3. development of Intellicentre 3 in Sydney on track for completion in 2Q21.
• Key negative: increased competition for data centres and compression of cap rates is making it difficult to acquire assets in the space.
• Maintain HOLD with a target price of S$2.80.

Keppel DC REIT's 1Q21 DPU of S$0.0246 In-line with our projections

• See Keppel DC REIT's announcements dated 20-Apr for 1Q21 business updates.
• Keppel DC REIT's 1Q21 DPU in-line with our projections, making up 25.3% of our DPU projections for FY21.
• Due to a non-cash adjustment for the lease at Kelsterbach, reported revenues and NPI were down 9.8% q-o-q.
  • Straight-lining of rental incentive for lease at Kelsterbach.
  • However this will not have any impact to distributable income and DPU.
• 1Q21 distributable income and DPU increased 1.4% and 1.0% q-o-q, mainly due to additional income from Amsterdam Data Centre that was acquired in December 2020, and additional income from properties that have recently completed AEI.

Key Highlights

AEI works at DC1 and Keppel DC Dublin 2 have been completed, and development of Intellicentre 3 progressing as planned.

• Total AEI cost of S$72m; slightly lower than initial estimate.
• Additional capacity from AEI has been fully contracted by tenant. 100% occupancy maintained at both properties.
• Development of Intellicentre 3 East Data Centre in Sydney (Australia) progressing as planned.
  • Practical completion in 1Q21, development completion expected in 2Q21.
  • 20-year triple net master lease with Macquarie Data Centres to commence upon development completion.
  • New 20-year triple net master lease for Intellicentre 2 Data Centre.

Maintained strong portfolio occupancy of 97.8% in 1Q21.

• Slight improvement in occupancy rate at Keppel DC Dublin 1.

Gearing inched up 1% q-o-q to 37.2%

• Higher gearing due to additional debt taken to lowering gearing over time.
• Average cost of debt improved marginally from 1.6% to 1.5%.

Our thoughts

• There will be two key data points of Keppel DC REIT to look out for in FY21:
  1. ~28% of leases (by rental income) that will be expiring this year, and
  2. cap rates of acquisitions.
• Over the past year, cap rates of data centres have all available opportunities and are not adverse to assets that require capex if they are confident that they will be able unlock value for such properties.
• Based on shorter WALE profile of some of its close eye on Basis Bay in Malaysia (occupancy of 63.1% and WALE of 1.5 years).
• At current share price, Keppel DC REIT is trading at a forward yield of ~3.6% for FY21 and ~3.8% for FY22. As such, we maintain our HOLD recommendation with a target price of S$2.80.
• 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.

DBS Group Research DBS Group Research | https://www.dbsvickers.com/ 2021-04-21

SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.800 SAME 2.800