Brokers’ take: DBS raises target price for Keppel DC Reit on steady growth
Mia Pei
DBS Group Research has increased its target price for Keppel DC Reit to S$2.45 from S$2.35 in the light of the real estate investment trust’s (Reit) strong financial performance for the first half of FY2023.
In its view, the Reit will maintain this positive momentum as earnings growth will be driven by accretive acquisitions over the past year, recent asset enhancement initiatives, and the protracted completion of Guangdong Data Centre 3 (Guangdong DC 3).
On Tuesday (Jul 25), the research house maintained its “buy” call on the Reit.
Its revised target price implies a forward yield of 4.1 per cent to 4.4 per cent, which is in line with the four-year average of 4.1 per cent. Keppel DC Reit’s distribution yield was 4.5 per cent in FY2022.
For the whole of FY2023, DBS is forecasting the Reit will report a distribution per unit (DPU) of S$0.10, slightly down from its FY2022 DPU of S$0.102. However, it projects higher DPUs of S$0.103 for FY2024, and S$0.107 in FY2025.
FY2024’s estimates include full-year contribution forecasts for Guangdong DC 3, which the analysts note to be on track for completion in Q3 of 2023.
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These projections remain relatively conservative, said DBS analysts, as they do not include further acquisition assumptions which are likely to be accretive to earnings.
In their view, the Reit’s DC portfolio in the Asia-Pacific (Apac) and Europe will continue to benefit from the structural tailwinds of the sector.
The analysts also like the Reit for its consistently high occupancy rate along with support from its sponsor, Keppel Telecommunications and Transportation.
While DBS did not include future acquisition assumptions in its estimates, Citi analyst Brandon Lee viewed the Reit as fairly priced after taking into account its potential acquisitions.
The Citi research house remains “neutral” on Keppel DC Reit with a price target of S$2.16.
On potential acquisitions, Lee noted that the capitalisation rates in Europe and Apac have not expanded. There are also limited properties for sale despite the Reit’s efforts to seek out acquisition opportunities in these regions.
The short land tenure of the Reit’s Singapore assets could also pose downside risks to the portfolio, he said.
“If the land leases for the assets are not renewed on expiry, the negative impact to Keppel DC Reit would be quite sizeable given that these assets make up a meaningful portion of assets under management,” Lee added.
Keppel DC Reit’s unit was trading down 0.44 per cent, or S$0.01, to S$2.26 as at 12.12 pm on Tuesday.
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