Broker's take: CGS-CIMB upgrades Keppel DC Reit to 'add'

CGS-CIMB has upgraded Keppel DC Reit to "add", with an unchanged target price of S$2.17.

The stock's 26 per cent price decline in the past month presents a "long-awaited" opportunity to gain access to the only pure data centre real estate investment trust (Reit) in Singapore, said CGS-CIMB analysts Eing Kar Mei and Lock Mun Yee.

Moreover, the share price will be supported by the Reit's resilient business model and ability to make accretive acquisitions which will further spur distribution per unit growth, and in turn valuation, according to the report dated Wednesday.

"While it is the most expensive S-Reit under our coverage, we think this is justifiable given its pure exposure to data centres," the analysts said.

Any acquisition made by the Reit will likely be accretive, the report said. This comes amid the low interest rate environment, the Reit's healthy gearing of 30.7 per cent, which is one of the lowest among the S-Reits covered by CGS-CIMB, as well as Keppel DC Reit's low cost of capital.

There is also a low risk of non-renewal for Keppel DC Reit's portfolio, as relocation would incur migration risks and higher capital expenditures for tenants.

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Moreover, the Reit has a long weighted average lease expiry of 8.6 years and only 4.2 per cent of its leases are up for renewal in 2020.

Despite economic uncertainties, CGS-CIMB also foresees visible earnings growth for Keppel DC Reit in its 2020 and 2021 forecasts.

As at 10.17am on Thursday, Keppel DC Reit units were trading flat at S$1.86.