Keppel DC Reit: What’s next after a strong first quarter?

Data-centre play Keppel DC Reit could see upside in its share price and distributions if it undertakes more acquisitions, research teams say.

  • Keppel DC Reit (SGX: AJBU) share price stays flat at S$2.69 per share
  • Its distribution per unit jumped 18.1% for the first quarter this year
  • The Reit should make more acquisitions to lift its DPU, analysts believe
  • Buy and sell Keppel DC Reit shares with an IG account

Keppel DC Reit boosts DPU by 18.1%

Singapore-listed Keppel DC Reit’s stock ended Wednesday (21 April 2021) at S$2.69, unchanged day-on-day, on volume traded of about 6.4 million units.

On Tuesday evening, the data-centre real estate investment trust (Reit) released an operational update showing that its net property income rose 10% to around S$61 million for the first quarter of 2021.

Distribution per unit (DPU) jumped 18.1% to S$0.02462 for the quarter, versus S$0.02085 in the year-ago period.

The manager said income was ‘stable’, with a portfolio occupancy of 97.8% as of end-March 2021 and a weighted average lease expiry (WALE) of 6.6 years.

Keppel DC Reit will continue to pursue opportunities to diversify its portfolio globally and sustain its growth momentum, according to the manager.

What will drive its share price and DPU growth?

Demand for data centres continues to be strong, but this has been priced into Keppel DC Reit’s shares, which are trading at less than 4% dividend yield, CIMB analysts said on Tuesday.

They reiterated ‘hold’ and a S$2.86 target, stating that potential upside could come from higher accretion from acquisitions.

Keppel DC Reit is still actively looking for acquisitions globally, though the data-centre industry has seen cap rate compression. ‘The focus will be on acquiring from third parties, as the sponsor’s asset may only be ready by the end of the year,’ CIMB said.

‘Given the high occupancy of most of the Reit’s data centres, we think acquisitions are essential to drive substantial DPU growth,’ CIMB added.

Meanwhile, Citi’s research team said the DPU increase was in line with consensus expectations.

The operational update underlined the resilience of the data-centre sector and, more notably, the importance of acquisitions in driving growth, Citi said.

Keppel DC Reit’s acquisitions ‘continue to lag market expectations’, and intense competition coupled with subdued funding cost could slow down its ‘impressive track record’ of announced acquisitions, the analysts wrote.

They maintained a ‘neutral’ recommendation on Keppel DC Reit’s units with a S$3 target. In Citi’s view, a larger-than-expected magnitude of acquisitions would be a key catalyst to the share price.

Why did OCBC analysts say the Reit is a ‘buy’?

OCBC dubbed Keppel DC Reit ‘one of the most defensive Reits’, given its long portfolio WALE.

It is also a strong proxy to growing demand for data-centre space, underpinned by increasing digitalisation and cloud adoption trends, OCBC analysts said on Wednesday.

Keppel DC Reit’s tenants come from fast-growing industries such as internet enterprise, IT services, telecommunications, and financial services. Its manager is ‘proactively engaging tenants on lease renewal negotiations, and sounded confident about the prospects of retaining its tenants’, OCBC added.

It recommended 'buy', but lowered its fair-value estimate to S$3.32, from S$3.51.

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