Keppel DC REIT - CGS-CIMB Research 2023-02-01: Another Year Of DPU Growth

• Keppel DC REIT (SGX:AJBU)'s FY22 DPU of S$0.10214 (+3.7% y-o-y) was in line with expectation. DPU growth was largely due to the acquisition of London DC, Guagdong DC 1, 2 and 3 and the investment in Netco bonds, post-AEI contributions at DC1 and the Dublin assets and the completion of Intellicentre 3 East Data Centre.
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Data centre demand still holding up well

• Management shared that Keppel DC REIT managed to secure positive reversions on leases signed during the year, with some leases signed at double-digit positive reversions. Portfolio occupancy was stable y-o-y and q-o-q at 98.5% as at end-FY22. Occupancy at KDC SG1 dipped q-o-q from 92.6% to 90.1%, attributed to a reduction in ancillary office space by a tenant. Management said it has not experienced any downsizing of DC space in Keppel DC REIT’s key markets.
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• Keppel DC REIT's gearing improved q-o-q from 37.5% to 36.4% due to revaluation gains of S$68m. Keppel DC REIT's management shared that cap rates remain tight in its target acquisition markets.
• Keppel DC REIT’s interest rate coverage ratio remains robust at 7.6x, albeit slightly lower compared to 3Q22’s 8.5x. Average cost of debt for the quarter inched up q-o-q from 2.3% to 2.7% and averaged 2.2% for the year, on the low side amongst its S-REIT peers.
• About 74% of Keppel DC REIT’s borrowings are on fixed rates, with 11.1% of loans up for refinancing in 1H23. A 100bp increase in interest rates would lower 4Q22 DPU by 2.1% on a pro-forma basis.
• While the improvement in gearing would allow Keppel DC REIT to fully debt fund progressive payments for Guangdong DC3, during the analysts’ briefing, the management said that it prefers to raise equity to provide the REIT with more debt headroom for opportunistic acquisitions.

Keppel DC REIT - DPU forecast and target price

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LOCK Mun Yee CGS-CIMB Research | Natalie ONG CGS-CIMB Research | https://www.cgs-cimb.com 2023-02-01 SGinvestors.io

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