Analysts from DBS Group Research and OCBC Investment Research have kept their calls on Keppel DC REIT AJBU , following its 1QFY2023 business update showing continued improvement.
For the three months ended March 2023, the data centre REIT owner saw its distribution per unit increase by 3% y-o-y thanks to better tax efficiency.
Keppel DC REIT's operational performance improved too, with revenue up 6.5% y-o-y and net property income up 6.3%.
"It was a steady start for KDCREIT," says DBS in its April 19 note.
Factors contributing to this include increased contribution from the REIT’s Guangdong Data Center 2 and the building shell of Guangdong Data Centre 3, various other asset enhancement initiatives, as well as organic growth from renewals and income escalations.
On the other hand, the numbers were weighed by lower contributions from Singapore co-location assets due to higher expenses such as power, as well as the effect of the stronger Singdollar versus revenue booked in foreign currencies.
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As of 1QFY20223, portfolio occupancy rates remained stable at 98.5%, in line with the preceding 4QFY2022.
In addition, tenant credit remains "solid" with minimal arrears, says DBS, which has kept its “buy” call and $2.35 target price. Keppel DC REIT is looking to renew leases equivalent to 14.3% of its income this year and DBS believes the REIT's portfolio remains resilient with strong retention rates.
"The manager continues to see robust demand in all the markets Keppel DC REIT operates with minimal arrears, implying that tenant credit standing remains strong," says DBS, lauding too, the REIT manager’s rates and forex management chops, that has “substantially” shielded it from rate spikes and forex volatility.
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“Overall, we remain attracted to Keppel DC REIT at 1.4x P/B, and with a forward yield of 5%, places them in a good position to deliver accretive acquisitions,” says DBS.
In its separate April 19 note, OCBC Investment Research flags that Keppel DC REIT, besides organic growth, is also on the lookout for new acquisitions.
Citing the REIT’s manager, “more viable” acquisition opportunities at this point in time would come from Japan and Europe.
Keppel DC REIT can also tap on its sponsor’s pipeline, where there is more than $2 billion worth of data centre assets under development and management. However, any deals might only take place towards the end of the year, adds OCBC.
OCBC also points out that Keppel DC REIT has already “substantially” hedged its estimated foreign-sourced distributions till end of 2023 and starting in April, has too, progressively hedged its overseas income till the end of June 2024.
While OCBC is keeping its distribution per unit estimates unchanged, it has lowered its risk-free rate assumption from 3.50% to 3.15%. “Consequently, our fair value estimate increases from $1.98 to $2.05.”
PhillipCapital downgrades Keppel DC REIT to 'accumulate'
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PhillipCapital analyst Darren Chan has downgraded Keppel DC REIT to "accumulate" from "buy" with a lower target price of $2.26 from $2.58 previously. The target price was lowered to factor in higher interest expense and cost of equity (COE).
In his report dated April 21, however, Chan notes several positives on the REIT including its stable portfolio occupancy of 98.5% as at end-March. The REIT's net property income (NPI) yield of 7.2% and long weighted average lease expiry (WALE) of 8.2 years is still superior to other asset classes.
"Catalysts include more accretive acquisitions and lower-than-expected interest costs. The current share price implies FY2023/FY2024 distribution per unit (DPU) yields of 4.7%/4.9%," he says.
