Keppel DC REIT - CGS-CIMB Research 2021-10-25: Low Cost Of Funding Supports Acquisitions

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KEPPEL DC REIT (SGX:AJBU)

Keppel DC REIT - Low Cost Of Funding Supports Acquisitions

• Keppel DC REIT (SGX:AJBU)'s 9MFY21 DPU of S$0.074 (+9.7% y-o-y) is in line at 74% of our FY21 forecast.
• The stronger results were driven by acquisitions, AEIs, and new leases.
• Reiterate ADD. Keppel DC REIT’s healthy gearing and relatively low cost of funding would provide it ample flexibility to accelerate its pace of acquisitions.

Keppel DC REIT reported stronger 9MFY21 driven by acquisitions and AEIs

• Keppel DC REIT (SGX:AJBU)’s revenue increased 6.7% y-o-y in 9MFY21 to S$204.5m, driven by acquisitions (Kelsterbach DC in May 2020, Amsterdam DC in Dec 2020, and Eindhoven Campus, Netherlands in Sep 2021) and asset enhancement initiative (AEI) works. Commencement of its lease with Macquarie Data Centres at Intellicentre Campus in Jul also contributed to the higher revenue.
• Keppel DC REIT's 9MFY21 NPI increased 6.2% y-o-y to S$187.6m while DPU increased 9.7% y-o-y to S$0.07386, in line at 74% of our full-year forecast.

Stable operating metrics

• Keppel DC REIT's portfolio occupancy remained stable at 98.1% in 3Q21 (vs. 98% in 2Q21) while WALE lengthened from 6.5 years to 7 years, due to the commencement of a 20-year lease at Intelligence Campus in Jul 2021. Keppel DC REIT saw healthy renewal and expansion of leases with existing clients in 3Q21.
• It has a remaining 0.4% of its leases by rental income expiring in 2021, and has started discussions with its clients for contracts expiring in 2022. Some 18.8% of its leases by rental income are due to expire in 2022. We expect occupancy to remain stable in 2022F given the strong demand and stickiness of data centre tenants.

Actively pursuing quality acquisitions

• YTD, Keppel DC REIT has announced ~S$280m worth of Bluesea Intelligence Valley.
• Keppel DC REIT's gearing of no update on when Singapore would lift its moratorium on new data centres.

Reiterate ADD

• We trim our FY21-23F DPU forecasts for Keppel DC REIT by 2-3%, mainly given its healthy gearing and relatively low cost of funding.
• See
  • Keppel DC REIT's Share Price,
  • Keppel DC REIT's Target Price,
  • Keppel DC REIT's Analyst Reports,
  • Keppel DC REIT's Dividend History,
  • Keppel DC REIT's Announcements,
  • Keppel DC REIT's Latest News.
• Potential re-rating catalysts include more accretive acquisitions while downside risk include lower-than-expected rental reversions.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2021-10-25

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