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Broker's take: DBS maintains 'buy' on Keppel DC Reit; OCBC downgrades

DBS Group Research has maintained its "buy" call on Keppel DC Reit, raising the target price for the Reit (real estate investment trust) to S$1.60 on the back of a rebound in operational performance and new acquisitions.

However, the same sentiments were not shared by OCBC Investment Research brokers, who have downgraded Keppel DC Reit to "hold".

They see limited upside potential despite a 24.1 per cent increase on Keppel DC Reit's unit price since the start of 2017. OCBC cited a slower ramp-up in occupancy at Keppel DC SG1 and Keppel DC Dublin 1, lower finance costs, and a higher effective tax rate affecting the Reit's upside potential.

As a result, OCBC lowered its fiscal 2018 and 2019 distribution per unit forecasts by 1.3 per cent and 3.6 per cent respectively, with the unit's fair value at S$1.51.

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Both DBS and OCBC said that Keppel DC Reit's fourth-quarter results were in line with expectations, noting that the Reit's properties enjoyed a high occupancy rate with limited expiries over the coming two financial years. OCBC added that the Keppel DC Reit portfolio had a weighted average lease expiry of 9.1 years.

DBS added that a pickup in occupancies and rental reversionary prospects may lift future earnings estimates.

On the other hand, DBS analysts cited competition from larger third-party data centre players as a key risk to their evaluation. The data centre market is dominated by international players that have entered into markets where Keppel DC Reit operates in. As a result, Keppel DC Reit may face higher barriers to entry and stiffer competition to attract and retain tenants, the analysts said.

Keppel DC Reit units were trading at S$1.48, up 0.01 Singapore cent or 0.68 per cent, as at 10.20am.

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