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Brokers' Take: DBS Group Research raises target price for Keppel DC Reit

DBS Group Research raised its target price for Keppel DC Reit from S$1.40 to S$1.44 on Wednesday. This followed the Reit's announcement that it had bought a data centre in Dublin, Ireland, for 66 million euros (S$101.3 million).

With this purchase, Keppel DC Reit's assets under management has increased to S$1.53 billion across 13 data centres, excluding the maincubes data centre which remains under construction by the vendor in Germany.

In its report, DBS Group Research estimated the net property income (NPI) yield of the new asset at 7.5 per cent, and contributions to be immediately accretive to distribution per unit (DPU). It also projected that the Reit's DPU for FY2018 would be lifted by 5.5 per cent to 7.72 Singapore cents. It maintained its "buy" rating on the Reit.

The acquisition has been completed and is funded entirely by debt. Post completion, Keppel DC Reit expects its aggregate leverage to increase from 27.7 per cent to 32.4 per cent.

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Going forward, DBS Group Research believes that future acquisitions are likely to tap equity fund raising, which may imply potential DPU dilution.

For the second quarter ended June 30, 2017, Keppel DC Reit posted a 4.2 per cent increase in DPU to 1.74 Singapore cents. Distributable income to unitholders rose 36.5 per cent to S$20.1 million, which the trust attributed mainly to acquisitions announced last year. Meanwhile, gross revenue rose 38.8 per cent to S$34.5 million, and net property income rose 41.9 per cent to S$31.4 million.

As at 3.10pm, Keppel DC Reit units stood at S$1.290, down 0.4 per cent from Tuesday.

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