SINGAPORE (Oct 17): Analysts are maintaining Keppel DC REIT (KDCREIT) at “buy” on healthy demand for data centres, AUM growth via acquisition and 3Q18 healthy operating metrics.

KDCREIT last night reported its 3Q18 gross revenue and NPI jumped 34.0% and 33.4% y-o-y to $47.6 million and $43 million, respectively driven largely by acquisitions and higher variable income from its Singapore properties.

Although distributable income to unitholders jumped 29.0% y-o-y to $26.0 million, DPU grew at a smaller magnitude of 6.3% to 1.85 cents due to an enlarged unit base and capex reserves amounting to $1 million.

OCBC Investment Research analyst Andy Wong Teck Chin says KDCREIT’s portfolio occupancy improved 1.1 ppt q-o-q to 93.1%, given the ramp-up at KDC SGP 5 and expansion of space by a tenant at KDC DUB 1, but partially offset by a client which scaled back its operations at KDC SGP 1. The only one lease renewal in 3Q18 also resulted in a positive rental reversion.

Wong also views positively the construction of new data centre IC3 DC on the vacant land within the IC2 DC site in Sydney, Australia, as the NPI yield on cost is expected to come in at 7.3% and Macquarie Telecom will sign a 20-year triple-net master lease upon completion.

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OCBC has a fair value of $1.48 giving FY19F yield of 5.3%.

Besides KDCREIT being operationally stable and with predictable cash flow and low leverage, Phillip Securities analyst Richard Leow says data centre demand remains robust and manager has seen greater demand especially from cloud service providers who tend require more space and more power. Meanwhile, Phillip says the over-supply situation in Singapore applies only to smaller boutique operators while larger players such as KDCREIT are experiencing healthy occupancy.

And despite hitting its AUM target of $2 billion for 2018 has been achieved. Leow says management intends to maintain the pace of acquisitions.

Phillip has a target price of $1.45 giving FY19F yield of 5.1%.

DBS Group Research lead analyst Derek Tan says KDCREIT’s 9M18 DPU of 5.47 cents came in line with expectations, forming 74% of full-year forecast.

Operational metrics also improved as occupancy rate rose marginally to 93.1% in 3Q18 vs 92.0% in 2Q18 with a long weighted average lease expiry (WALE) of 8.5 years.

The REIT’s financial metrics remained strong, with average cost of debt still stable at 1.9% with 86% of the rates fixed.

Overall gearing also remained low at 32%, enabling the REIT to acquire more assets
going into 2019.

“While not committing to an AUM target, the manager is reviewing opportunities in both new and existing markets as the REIT looks to bulk up and grow distributions and AUM.

DBS has a $1.52 target giving FY20F yield of 5.1%.

Year to date, units of Keppel DC REIT are down 6.3% to $1.34.