SINGAPORE (Oct 30): DBS Group Research is maintaining its “buy” call on Keppel DC REIT and raising its target price to $2.20, some 17.6% higher than the previous target price of $1.87.
“Given robust accretion from recent acquisitions, we believe Keppel DC REIT can maintain its meteoric rise on the back of a virtuous acquisition cycle strategy where its cost of capital remains well below its investment return,” says lead analyst Derek Tan in a report on Tuesday.
Keppel DC REIT last month announced it is acquiring a 99% stake in Keppel DC Singapore 4 and 1-Net North Data Centre for a total consideration of $585.1 million.
See: Keppel DC REIT acquiring two data centres for $585 mil; launches equity fund raising
Keppel DC Singapore 4 (KDC SGP 4) is a five-storey carrier-neutral and purpose-built colocation facility which is 92% occupied.
The centre is also located close to two of the REIT's existing data centres, Keppel DC Singapore 2 and Keppel DC Singapore 3.
See also: Test debug host entity
Meanwhile, 1-Net North DC is a five-storey purpose-built facility on a triple-net master lease with 17 years remaining, and an option to renew for a period of 7.6 years.
The centre is located just outside the Woodlands Regional Centre, a planned commercial hub that will serve as the Northern Agri-Tech and Food Corridor.
The manager noted that the proposed acquisitions are expected to be “highly accretive” to the REIT’s distribution per unit (DPU).
See also: Maybank downgrades ComfortDelGro in contrarian call over Addison Lee acquisition worries
See: Keppel DC REIT launches equity fund raising to raise $473.8 mil for new acquisitions
“After an active year of acquisitions coupled with inclusion into the EPRA Nareit Developed Asia Index, we believe the REIT will continue to outperform market expectations to keep valuations at a premium,” says Tan.
Since Sept 23, Keppel DC REIT has been included in the TSE EPRA/NAREIT Global Real Estate Index Series (Global Developed Index).
The international real estate investment index was developed by FTSE Group in cooperation with the European Public Real Estate Association (EPRA) and the National Association of Real Estate Investment Trusts (NAREIT).
The index series is designed to track the performance of listed real estate companies and REITs worldwide and is seen as the leading benchmark for listed real estate investments.
See: Keppel DC REIT to be included in FTSE EPRA/NAREIT Global Developed Index from Sept 23
“With the recent acquisitions and news of its inclusion into the EPRA Nareit Developed Asia Index, we believe the higher visibility and trading liquidity will lower the cost of capital for the REIT,” Tan says.
For more stories about where money flows, click here for Capital Section
The analyst notes that KDC REIT is projected to deliver a robust 2-year DPU CAGR of 8.0% in FY19-21.
Already, units in Keppel DC REIT have climbed nearly 42% year-to-date to close at $1.93 on Tuesday.
“Our target price of $2.20 is the highest on the street,” Tan adds. “Our numbers were raised further to incorporate recent acquisitions of two data centres in Singapore. Fuelled by a still visible acquisition pipeline from the sponsor and the manager scouting the globe for opportunities, we have assumed debt-funded acquisitions of $75 million in our estimates to be completed by 2H20.”
Keppel DC REIT is currently trading at an estimated price-to-net asset value (P/NAV) ratio of 1.8 times and a distribution yield of 4.1% for FY19F.
