SINGAPORE (Oct 17): CIMB Research is downgrading its call on Keppel DC REIT to “hold” from “add” with a higher target price of $1.37 from $1.36 previously, given the recent uptick in the trust’s unit price.
Keppel DC REIT yesterday posted a 9M17 adjusted distribution per unit (DPU) of 5.22 cents, representing a 4.2% growth from 9M16’s adjusted DPU of 5.01 cents after adjusting for the impact of its pro-preferential offering a one-off net property tax refund in 2016.
See: Keppel DC REIT's 9M DPU rises 4.2% to 5.22 cents
At $1.35 per unit, the trust now offers a total return of less than 10% which represents 1.11% upside and 5.6% FY18F yield.
In a Tuesday report, CIMB analysts Yeo Zhi Bin and Lock Mun Yee comment that 3Q17 has been a “relatively uneventful” quarter for the REIT in terms of leasing activities, although higher occupancies at both higher occupancies were seen at both SGP 1 and Dublin 1 on a q-o-q basis.
They nonetheless reiterate their view that the REIT is close to achieving its $2 billion asset under management (AUM) target by 2018, and expect income to be stable with minimal expiries spanning 2018-2020 as only 4.9% of leased area is due to expire over the next three years.
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“Meanwhile, 5% [of leased area] is up for renewal in the remainder of 2017. Pending lease document finalisation, key terms have been agreed in-principle for the two remaining major leases due in 2017,” note Lock and Yeo.
OCBC Investment Research however maintains its “buy” recommendation on the REIT with a $1.39 fair value estimate, as its latest 3Q17 results have come in line with the research house’s expectations to constitute 74% of its full-year projection.
Noting improved portfolio occupancy, OCBC analyst Andy Wong also highlights the manager’s optimism that Singapore’s data centre industry will eventually be absorbed in the foreseeable future, given limited upcoming supply and robust demand from cloud service providers in particular.
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Meanwhile, Phillip Capital is remaining “neutral” on the trust while raising its target price to $1.36 from $1.31 previously to represent an implied FY18E P/NAV multiple of 1.42 times. It has also increased its DPU forecast for FY17E and FY18E by 6.5% and 10.9% respectively after tweaking its revenue assumptions.
In the research house’s view, the trust’s headline 16.8% y-o-y DPU growth for 3Q is overstated at 1.74 cents compared to its historical 3Q16 DPU of 1.90 cents.
“The price of Keppel DC REIT has made a good run, and the current price is 1.41x P/NAV. The conditions are ripe to raise new equity with the next acquisition,” says analyst Richard Leow.
As at 11.48am, units of Keppel DC REIT are trading 0.4% lower at $1.34.
