Keppel DC REIT - OCBC Investment 2021-04-21: Continues To Deliver Strong DPU Growth


Keppel DC REIT - Continues To Deliver Strong DPU Growth

  • Keppel DC REIT's 1Q21 DPU jumped 18.1% y-o-y to 2.462 cents.
  • Occupancy unchanged at a high level of 97.8%.
  • Still awaiting acquisitions.

1Q21 business update exhibited continued growth which was in-line with our expectations

  • Keppel DC REIT (SGX:AJBU) provided a business update for 1Q21. Its gross revenue and NPI rose 10.6% and 10.0% y-o-y to S$66.7m and S$61.0m, respectively. This was driven largely by contributions from acquisitions and asset enhancement initiatives (AEI) in 2020.
  • Keppel DC REIT's 1Q21 DPU jumped 18.1% y-o-y to 2.462 cents. This accounted for 25.4% of our FY21 forecast, and we deem this as in-line with our expectations.

Portfolio occupancy remained firm at 97.8%

  • Keppel DC REIT’s overall portfolio occupancy was unchanged at a high level of 97.8%. Although no rental reversion figures were disclosed, management highlighted that it was stable during the quarter.
  • Overall industry trends remain robust, with the global colocation data centre market projected to grow 16% in 2021, and this would be led by Asia Pacific and Europe, according to market watcher Danseb Consulting.
  • Keppel DC REIT’s WALE remained long at 6.6 years, but 27.9% of its rental income is up for renewal from 2Q-4Q 2021. Keppel DC REIT is proactively engaging its tenants on lease renewal negotiations, and sounded confident about the prospects of retaining its tenants. This would also be supported by the new supply moratorium in Singapore and general stickiness of client relationships in the data centre industry.

Major acquisition would be the key re-rating catalyst

  • Keppel DC REIT maintained a healthy balance sheet, with an aggregate leverage ratio of 37.2%. This leaves it with a debt headroom of S$154m before reaching the 40% level. It remains on the hunt for acquisitions, and management highlighted that it has seen a 50-75 basis points compression in cap rates in the markets which it is looking at.
  • Data centre cap rates can range from sub-5% for shell and core assets in good locations to above 7% for some colocation assets.
  • We believe one of the underlying strengths of Keppel DC REIT is its ability to make good acquisitions, and we see its next major acquisition as the key re-rating catalyst for its share price.
  • After increasing our risk-free rate assumption to 1.9% in our model, versus 1.55% previously, our fair value estimate declines from S$3.51 to S$3.32.
  • 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 | https://www.iocbc.com/ 2021-04-21
SGX Stock Analyst Report BUY MAINTAIN BUY 3.32 DOWN 3.510