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PhillipCapital raises target price on Keppel DC REIT pending its acquisition deals

Felicia Tan
Felicia Tan10/26/2020 07:44 PM GMT+08  • 2 min read
PhillipCapital raises target price on Keppel DC REIT pending its acquisition deals
Among its peers, PhillipCapital analyst Natalie Ong prefers Ascendas REIT instead.
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PhillipCapital analyst Natalie Ong has maintained her “neutral” recommendation on Keppel DC REIT with a higher target price of $2.91 from $2.57 after incorporating $500 million of acquisitions for FY2021e.

See also: Analysts mixed on Keppel DC REIT despite 3Q DPU coming in 'within' and 'slightly above' expectations

Ong says the maintained recommendation comes as she believes the market has priced in potential catalysts from acquisitions and the REIT’s inclusion in the Straits Times Index (STI) despite its strong metrics.

“KDC REIT is trading at an all-time high and DPU yield of 3.1%/3.6% for FY2020e/2021e is not compelling,” she adds.

Keppel DC REIT declared a distribution per unit (DPU) of 2.357 cents for 3QFY2020 on Oct 22, primarily supported by the REIT’s new acquisitions.

As such, Ong prefers Ascendas REIT, which she has rated “accumulate” with a target price of $3.63 within the sector.

See also: RHB maintains 'buy’ on OCBC Bank amid expectations of a stable 4QFY2022

Globally, Ong sees demand for data centres, which is being driven by big data, 5G and cloud adoption. Singapore has also attracted Chinese tech companies looking to set up headquarters and operations in the country to perform big data analytics.

“We understand, however, that the Chinese tech players were unsuccessful in securing land from the government for data-centre development. Given the moratoriums on data centres in Singapore, we expect market rents to be bid up in the coming two years,” she says.

“While KDC REIT’s high portfolio occupancy of 96.7% and long WALE of 7.2 years translate to low expiries in 2021/22 and leave little opportunity for positive rental reversions, many of its existing leases and co-location arrangements have built-in periodic rental escalations averaging 2-4% per annum,” she adds.

Units in Keppel DC REIT closed 5 cents lower or 1.7% down at $2.95 on Oct 26.

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