Keppel DC REIT Continued to deliver but priced in
1QFY21 DPU of 2.46 Scts (+18.1% yoy) came in line with our full-year forecast.
■ The stronger revenue and NPI were driven by acquisitions and AEIs.
■ Demand for data centres continued to be strong, but we believe this has been priced in for Keppel DC REIT.
1QFY21 performance driven by acquisitions and AEIs KDC REIT’s 1QFY21 DPU of 2.46 Scts (+18.1% yoy) came in within our expectations at 24% of our full-year forecast. 1QFY21 revenue increased by 10.6% yoy to S$66.7m, while NPI was up 10% yoy to S$61m. The strong set of results was mainly due to the acquisition of Kelsterbach DC, a data centre in Amsterdam and AEIs in 2020. Portfolio occupancy remained healthy at 97.8% with a long WALE of 6.6 years by leased area. It has 7% of NLA (28% by rental income) up for renewal in 2021. We believe these leases would be renewed given the strong stickiness of data centre customers. While the demand for data centres is strong, rental reversion should be relatively stable as the REIT retains the long-term relationship with its customers.
1QFY21 performance driven by acquisitions and AEIs KDC REIT’s 1QFY21 DPU of 2.46 Scts (+18.1% yoy) came in within our expectations at 24% of our full-year forecast. 1QFY21 revenue increased by 10.6% yoy to S$66.7m, while NPI was up 10% yoy to S$61m.
The strong set of results was mainly due to the acquisition of Kelsterbach DC, a data centre in Amsterdam and AEIs in 2020. Portfolio occupancy remained healthy at 97.8% with a long WALE of 6.6 years by leased area. It has 7% of NLA (28% by rental income) up for renewal in 2021. We believe these leases would be renewed given the strong stickiness of data centre customers.
While the demand for data centres is strong, rental reversion should be relatively stable as the REIT retains the long-term relationship with its customers. AEIs completed on time and have been leased out KDC has completed the fit-out of a new data hall at Keppel DC Singapore 5 and handed it over to clients in Dec 2020. The development of IC3 in Sydney is also progressing as planned and achieved practical completion in 1Q21 with development completion expected in 2Q21. Fit-out works for DC1 have also been completed as planned and it is leased to 1-Net Singapore on a fully-fitted basis. Dublin 2 has achieved practical completion of AEI works.
Additional data hall space for this asset has been committed by an existing client and IT power is fully contracted. Continues to look for acquisitions We understand that KDC REIT is still actively looking for acquisitions globally. The industry has seen cap rate compression and is generally trading at 5-7% cap rate.
The focus will be on acquiring from third parties given that the sponsor’s asset may only be ready by the end of the year. While KDC REIT’s gearing increased from 36.2% to 37.2% due to drawdown for the AEIs, it remains healthy. Debt headroom based on 40% gearing remains high at S$134m which supports potential acquisitions. KDC REIT remains comfortable even if gearing hits 40%. Given the high occupancy of most of the REIT’s data centres, we think acquisitions are essential to drive substantial DPU growth.
Reiterate Hold We maintain our FY21-22F DPU and DDM-based TP at S$2.86. Covid-19 has fueled further demand for and underpinned the importance of data centres, but we believe this has been priced in. The REIT is trading at 4% dividend yield. Upside/downside risks include higher/lower accretion from acquisitions.
Reuters: KEPE.SI Bloomberg: KDCREIT SP Market cap: US$3,315m
-CIMB Bank Research