Analysts from CGS-CIMB Research and DBS Group Research are slightly hesitant on the growth prospects of Keppel DC REIT despite its positive results for the FY2020.
On Jan 26, Keppel DC REIT reported distribution per unit (DPU) of 4.795 cents for the 4QFY2020 ended December, 27.5% higher y-o-y, and FY2020 DPU of 9.17 cents, which is 20.5% higher y-o-y.
See: Keppel DC REIT’s DPU surges 20.5% in FY2020, manager plans to continue with acquisitions
The higher figures were mainly driven by acquisitions and higher occupancy during the period.
While CGS-CIMB analysts Eing Kar Mei and Lock Mun Yee view the results as “in line” with their forecast and see “good prospects” for the REIT, they also believe that these have already been “priced in”.
To this end, Eing and Lock have maintained their “hold” call with a lower target price of $2.86 from $2.88 as they model in the REIT’s FY2020 numbers.
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The analysts have also lowered their DPU estimates for FY2020 by 0.5% to 0.8% for the same reason.
“Covid-19 has fueled further demand for and underpinned the importance of data centres, but we believe this has been priced in. We have factored in $300 million acquisition in FY2021. Upside/downside risks include higher/lower accretion from acquisitions,” they write.
DBS Group Research analysts Dale Lai and Derek Tan have also maintained their “hold” call with the same target price of $2.80.
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To Lai and Tan, the REIT has healthy growth prospects and is expected to grow its DPU by some 6% in FY2021 led by its recent acquisition and organic growth from annual rental escalations.
Lai and Tan have also assumed acquisitions of $400 million in 2HFY2021, which is pencilled in their estimates.
That said, Keppel DC REIT may face competition from larger third-party data centre players who are also looking to grow their footprint and attract tenants, which has led to the REIT’s $220 million worth of acquisitions in FY2020 coming in lower than Lai and Tan’s estimates.
However, despite the REIT’s positive results and growth prospects, Lai and Tan “recognise that Keppel DC REIT is currently trading at a very tight forward yield of 3.4%”.
OCBC Investment Research’s (OIR) research team is the only brokerage to rate Keppel DC REIT at “buy” with a higher fair value estimate of $3.51 from $3.41 previously.
The REIT’s FY2020 results came in within the team’s expectations, which accounted for 101.2% of its forecast, while its higher portfolio occupancy is supported by “robust industry outlook”, in its view.
The team also expect the REIT to propose further acquisitions in FY2021 following its acquisition of a data centre and facility in Amsterdam in FY2020.
“Keppel DC REIT also said that it was still evaluating a large pipeline of potential deals, with estimated net property income (NPI) yields likely to be well above 5.1%. Any acquisitions are also expected to be DPU accretive even if an equity-to-debt ratio of 70/30% was adopted as funding structure. After adjustments and rolling forward our valuations, our fair value estimate increases from $3.41 to $3.51,” they say.
As at 1.46pm, units in Keppel DC REIT are trading 4 cents higher or 1.4% up at $2.95 or price to net asset value (P/NAV) of 2.3 times, according to DBS’s estimates.
