SINGAPORE (Oct 17): Analysts believe that Keppel DC REIT could turn to more new acquisition to seek growth, after the data centre trust posted 3Q19 results that were in line with expectations.
For the latest quarter ended September 2019, KDCREIT reported a 4.3% rise in distribution per unit (DPU) to 1.93 cents, on the back of a 5.4% growth in distributable income to $27.4 million.
The higher DPU came despite a 1.8% dip in net property income to $42.3 million, as 3Q19 gross revenue slipped 2.5% to $46.4 million.
The lower gross revenue was mainly due to the absence of rental top up income provided by the relevant vendors for KDC SGP 5, KDC DUB 2 and Milan DC, as these rental top up incomes had been fully recognised as at end-June.
Nonetheless, higher contributions from the Singapore properties, lower tax expenses and higher net realised gains on derivatives drove KDCREIT to higher distributable income during the quarter.
Now, analysts say acquisitions could provide a “positive surprise” for the REIT.
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“Looking ahead, KDCREIT remains on the lookout for inorganic growth opportunities, as ample debt headroom remains,” says the research team at OCBC Investment Research.
OCBC is keeping its “hold” call on KDCREIT with an unchanged fair value estimate of $2.08.
Geraldine Wong, an analyst at KGI Securities, agrees. “KDCREIT remains well-equipped for another round of acquisitions,” she says. “Capital management remains extremely prudent, as KDCREIT’s leverage ratio at 28.9% remains as one of the healthiest across the sector.”
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KGI is keeping its “outperform” rating on KDCREIT and raising its target price to $2.11, from $1.95 previously.
Already, KDCREIT had in mid-September proposed the acquisition of two data centres for a total consideration of $585.1 million.
The acquisition of a 99% stake in Keppel DC Singapore 4 and 1-Net North Data Centre, according to the manager, are expected to be “highly accretive” to the REIT’s DPU.
And the manager is said to be “still on the hunt for acquisitions”.
“Further acquisitions are not out of the question, following the recent yield accretive twin acquisitions to be completed by end 2019,” says Wong. “Management shared that they continue to look for opportunities nearer to home to ensure that at least 50% of portfolio exposure remains within the APAC region to suit the investment mandates of current institutional investors.”
Further, the analysts believe the next acquisitions on the horizon could be via third party off-market deals instead of sponsor assets.
Remaining “positive” on KDCREIT, Wong is now expecting a steep increase in DPU for FY20 and FY21 to 9.0 cents and 9.5 cents, respectively – up from previous estimates of 7.7 cents and 8.0 cents respectively.
As at 4.43pm, units in KDCREIT are trading 1 cent lower at $1.99. According to KGI’s valuations, this implies an estimated P/NAV of 1.2 times and a dividend yield of 3.7% for FY19F.
