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Analysts confident that Keppel DC REIT on track to meet $2 bil AUM for 2018

Samantha Chiew
Samantha Chiew1/23/2018 11:33 AM GMT+08  • 3 min read
Analysts confident that Keppel DC REIT on track to meet $2 bil AUM for 2018
SINGAPORE (Jan 23): Keppel DC REIT on Monday posted that its 4Q17 DPU increased 34% to 1.75 cents from 1.31 cents in 4Q16.
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SINGAPORE (Jan 23): Keppel DC REIT on Monday posted that its 4Q17 DPU increased 34% to 1.75 cents from 1.31 cents in 4Q16.

Its gross revenue came in at $36.8 million, 37.2% higher than from $26.8 million a year ago.

The REIT’s property operating expenses increased more than doubled to $4.18 million from $1.90 million a year ago.

This brought net property income for the fourth quarter ended December to $32.6 million, 30.9% higher than $24.9 million recorded in the same period last year.

See: Keppel DC REIT posts 34% increase in 4Q DPU to 1.75 cents

Following the results announcement, CIMB continues to rate Keppel DC REIT “hold” with a target price of $1.44.

See also: UOB Kay Hian keeps 'overweight' rating on data centre REITs as it sees backfilling supported by tight vacancies

The REIT’s 4Q DPU was boosted by its accretive acquisitions – DUB 2, Milan DC, Cardiff DC and 90% interest in SGP 3.

However, these were partially offset by lower variable income from SGP 2 and Basis Bay DC.

The REIT also recorded a fair value loss of $8.6 million on investment properties, mainly from SGP 2 and Gore Hill DC due to lower rental assumptions and Basis Bay DC and DUB 1 on lower occupancy assumptions.

See also: RHB keeps 'buy' call and $3.30 price target on Singtel

In a Monday report, analyst Yeo Zhi Bin says, “We note that SGP 3 recorded a relatively sizeable investment gain, partially offsetting the losses from the four properties.”

Looking ahead, a minimal 9.2% of the REIT’s leased area will be up for renewal in FY18 to FY20, which suggests stabilised income.

Including mainCubes which is scheduled to be completed in 2Q18, the analyst predicts that the REIT’s revenue will increase, while its AUM would grow to $1.65 billion.

“We believe that sponsor’s Almere 2 (estimated $140 million) could be ready for acquisition in 2018. This means that KDCREIT would need to acquire another $200 million worth of third-party assets to meet its $2 billion AUM target in 2018,” says Yeo.

Conversely, DBS is maintaining its “buy” call on Keppel DC REIT with an increased target price of $1.60.

In a Tuesday report, analyst Derek Tan says the REIT remains one of the few Singapore REITs that can make accretive acquisitions, supported by low cost of capital.

The REIT is projected to deliver solid 7% CAGR in distributions supported by ambitious growth plans

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The research house’s target price of $1.60 is the highest in the street, but Tan believes that consensus have not factored in acquisitions that can drive earnings higher than expected.

“In our forecast, we have assumed acquisitions of $300 million by end 2018, funded by debt/equity (40%/60%) mix,” says Tan.

This will bring the REIT’s AUM to $2 billion by end-2018, a target that should be achievable given a myriad of opportunities that the manager is reviewing.

In addition, the REIT has limited expiries over the coming two financial years, hence there is high income visibility.

As at 11.32am, units in Keppel DC REIT are trading at $1.48 or 1.49 times FY18 book with a dividend yield of 5.41%.

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