Keppel DC REIT 3Q21 Operational Update - Phillip Securities 2021-10-29: Assuredly Accretive Acquisitions


Keppel DC REIT 3Q21 Operational Update - Assuredly Accretive Acquisitions

  • Keppel DC REIT (SGX:AJBU)'s 3Q21/9M21 DPU of S$0.02462/S$0.07386 grew 4.5%/9.7% y-o-y. 9M21 DPU was in line, at 75% of our FY21e estimate.
  • S$281mil in completed and proposed investments year-to-date could provide more than 6% in DPU accretion for KDC.
  • Maintain BUY on the resilient data centre demand. FY21e/22e DPU forecast for Keppel DC REIT dips 0.3%/4.1% after we adjust our forecasts to factor in recent transactions. DDM-based target price for Keppel DC REIT (COE 5.75%) cut by 5.3% from S$3.20 to S$3.03 due to lower FY21e-FY25e DPU estimates.

The Positives

Keppel DC REIT's 3Q21 DPU +4.5% y-o-y due to acquisitions and AEI.

  • DPU lifted by acquisition of Amsterdamn DC and Eindhoven Campus in Dec20 and Sep21, and AEIs at KDC SG5, Dub1, Dub2 and DC1. Keppel DC REIT renewed ~7.2% of expiring GRI in 3Q21, bring FY21 expiries to 0.4% of GRI.
  • Occupancy remains high at 98.1% with WALE increasing q-o-q from 6.5 years to 7.0 years due to the commencement of a 20-year lease at Intellicentre Campus in Jul21.

Fruitful quarter of capital recycling.

  • Keppel DC REIT divested iSeek DC for S$35.3mil in Aug21, 21% and 1.4% above IPO and market valuation respectively. It also acquired Eindhoven Campus in Sep21 and inked the NetCo agreement in Oct21.
  • The three investments announced year-to-October totalled S$281mil, carrying weighted average yield of 8.3%. The acquisition of Eindhoven Campus was completed on Sep21, while the remaining two investments – Guangdong DC and investment in NetCo bonds – are estimated to be completed in 4Q21. We estimate that these acquisitions could provide more than 6% DPU accretion for Keppel DC REIT.

The Negative

Basis Bay DC lease expiring in ~8 months may be at risk.

  • Basis bay is a colocation asset located in Malaysia. Occupancy has remained at 63.1% since 2Q17. The management has previously cited weak interest in the asset. However, NPI contribution from this asset has been reduced by AUM growth and currently contributes ~1% to NPI.


  • Keppel DC REIT is evaluating several on-and off-market deals with cap rates ranging 4-5%. Cap rates have compressed 50-75bps since a year ago. Keppel DC REIT’s low cost of debt of 1.6% should still leave room for accretive acquisitions. The Sponsor group of affiliates manages more than S$2bn in data centre assets Keppel DC REIT could potentially acquire. Keppel DC REIT also has a ROFR on the remaining five data centres located within the Bluesea Intelligence Valley from the vendor of Guangdong DC.
  • Still no updates on Singapore’s moratorium on data centres which was rumoured to be lifted this year. Should it happen, supply could increase over the next 2-4 years. However, stickiness of data-centre tenants and Keppel’s track record as a data-centre operator should help it retain tenants.

Maintain BUY with a lower DDM target price of S$3.03 (previously S$3.20)

Natalie Ong Phillip Securities Research | https://www.stocksbnb.com/ 2021-10-29
SGX Stock Analyst Report BUY MAINTAIN BUY 3.03 DOWN 3.200