Keppel DC REIT - Phillip Securities 2022-04-21: Earnings Cushioned By Recent Investments


Keppel DC REIT - Earnings Cushioned By Recent Investments

  • Keppel DC REIT (SGX:AJBU)'s 1Q22 DPU of S$0.02466 (+0.2% y-o-y) was in line, forming 24.9% of our FY22e forecast.
  • Contributions from investments in Eindhoven DC, Guangdong DC, London DC and NetCo bonds totalling ~S$386mil, and completion of AEI at DC1 and Intellicentre3 development were wiped out by higher electricity costs, provision for litigation and absence of rental support for KDC4.
  • Maintain BUY call on Keppel DC REIT on earnings stability and attractive entry price for future-ready DC assets. FY22-26e DPUs forecast for Keppel DC REIT lowered by 3.7-6.1% due to provision for litigation and higher electricity costs, resulting in 8.2% reduction in our DDM-based target price for Keppel DC REIT (COE 5.88%) from S$2.81 to S$2.58.

The Positive

Portfolio occupancy up 0.4ppts y-o-y, from 98.3% to 98.7%.

  • This was due to higher occupancy at DUB1, which improved from 82.3% to 95.9%.
  • Keppel DC REIT also renewed its lease at Basis Bay, extending the the weighted average lease expiry (WALE) at the property from 0.2 years to 4.7 years. While committed occupancy was not disclosed, we understand from the management that the tenant has downsized its space. Occupancy at Basis Bay is expected to decline from 63.1% when the new lease kicks in. Portfolio WALE lengthened from 7.5 years to 7.7 years.

The Negatives

Litigation against DXC over revenue for provision of colocation services.

  • Keppel DC REIT announced its litigation against DXC on 21 March 2022. The suit, which was initiated by Keppel DC REIT, was for ~S$14.8mil in colocation service revenue in connection with provision of facility management services at KDC1 for the 4-year period between 1 April 2021 and 31 March 2025. The affected occupancy is ~0.4% of Keppel DC REIT’s NLA as at 31 December 2021, and the impact arising from the disputed sum per annum is approximately 2.0% of FY21’s distributable income.

Slight increase in cost of borrowing and gearing.

  • Cost of borrowing remains low despite increasing from 1.6% to 1.8%. Portion of debt on fixed rates crept up from 74% to 76% while gearing inched up slightly from 34.6% to 36.1% post-acquisition of London DC but remains below the 50% regulatory limit.


Natalie Ong Phillip Securities Research | https://www.stocksbnb.com/ 2022-04-21
SGX Stock Analyst Report BUY MAINTAIN BUY 2.58 DOWN 2.810