Keppel DC REIT - CGS-CIMB Research 2023-04-19: Another Steady Quarter; Enough Growth To Overcome Near-Term Headwinds

• Keppel DC REIT (SGX:AJBU)'s 1Q23 revenue/NPI grew 6.5%/6.3%% y-o-y to S$70.4m/S$63.9m, mainly due to contributions from the acquisition of Guangdong DC 2 and 3, completed asset enhancement initiatives (AEI), renewals and income escalations, partially offset by lower contributions from some of the Singapore colocation assets arising from hig her facilities expenses, including electricity costs. See Keppel DC REIT's announcement dated 18 Apr 2023.
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• Keppel DC REIT’s investment in NetCo Bonds was approved as qualifying project debt securities (QPDS), resulting in S$1m of tax savings for FY22, paid out in 1Q23 and 2Q23F.

Stable operations

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• Separately, fit-out of Guangdong DC 3 is on track for completion in 3Q23F, upon which the final payment to the seller and VAT amounting to ~S$157m will be due.
• While gearing of 36.7% as at 1Q23 will allow Keppel DC REIT to fully debt-fund final payments for Guangdong DC3, the management reiterated its plans to aggregate the Guangdong DC 3 final payment with another acquisition and conduct a larger equity fund raising (EFR) exercise, preserving debt headroom for opportunistic acquisitions.
• The management also said that it is actively looking for potential acquisitions, including off-market deals, and believes yield-accretive acquisition can still be found in Asia Pacific, particularly Japan, as well as in Europe.
• On 5 Apr 23, Keppel DC REIT refinanced all borrowings maturing in FY23F (4.9% of total) at floating rates based on 3M EURIBOR plus 100bp spread. Interest rate hedge post refinancing will be in line with historical levels of ~73%, in our view.

Reiterate ADD

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Natalie ONG CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2023-04-19 SGinvestors.io

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