Brokers’ take: Analysts bump Keppel DC Reit targets on acquisitions, attractive yield

ANALYSTS have raised their targets on Keppel DC Reit : AJBU 0% after factoring in recent acquisitions and attractive forward yields.

DBS Group Research on Tuesday (Jun 21) raised its target price on the data centre real estate investment trust (Reit) to S$2.50 from S$2.40 after revising its distribution per unit (DPU) estimates.

The research team noted that Keppel DC Reit is generating a “very attractive” forward yield of more than 5.2 per cent. It maintained its “buy” recommendation on the counter.

DBS’s new target price of S$2.50 represents a potential upside of 28.9 per cent from the counter’s trading price of S$1.94 as at 10.37 am on Tuesday. Keppel DC Reit was up 1.6 per cent or S$0.03 at the time.

Meanwhile, CGS-CIMB raised its target price slightly by S$0.01 to S$2.63, which represents a potential upside of 35.6 per cent. It maintained its “add” call on the counter.

The bump in target price came after the research team raised its FY2022-24 DPU estimates by 0.7-3.21 per cent, after factoring in contributions from Keppel DC Reit’s new acquisitions.

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On Monday, the Reit manager announced that Keppel DC Reit will acquire 2 data centres in Guangdong, China, for a total price of about 1.6 billion yuan (S$338.3 million). These acquisitions are expected to be DPU-accretive.

“Just as we had turned cautious and lowered our acquisition assumptions for Keppel DC Reit, it has surprised on the upside by delivering 2 acquisitions in Guangdong, China,” said DBS analysts Dale Lai and Derek Tan.

Keppel DC Reit’s ability to embark on the acquisition was surprising given record-low yields among data centres globally, they said. They added that the attractive 8 per cent yield from the acquisition would help drive DPU accretion over the next 3 years.

DBS expects the acquisitions to be 2.6 per cent accretive to the Reit’s DPU, even after factoring a potential equity fundraising (estimated at S$90 million) by Q3 2023 to fund the remaining payment for one of the Guangdong data centres.

Moreover, the acquisitions should add to earnings, on top of organic growth within the Reit’s existing portfolio, Lai and Tan said.

Separately, CGS-CIMB noted that Keppel DC Reit is trading at a projected 5.3 per cent FY2022 dividend yield following its recent unit price decline. It believes the longer-term demand for data centres will remain intact and underpin the Reit’s income resilience in the long term.

Units of Keppel DC Reit ended Tuesday at S$1.93, up 1.1 per cent or S$0.02.