• Keppel DC REIT’s FY20 DPU of S$0.0917 (+20.5% y-o-y) came in line with our forecast, driven by acquisitions and higher occupancy (+2.9% points y-o-y).
• Acquired S$48m data centre in Amsterdam in Dec 20. Strong pipeline ahead.
• Prospects remain strong but believe market has priced in. Maintain HOLD.

Stronger Revenue Driven by Acquisitions; Occupancy Improved Y-o-y

• Keppel DC REIT (SGX:AJBU)’s FY20 distribution of S$0.0917/unit (+20.5% y-o-y) came in within our expectations at 97.3% of our full-year forecast. FY20 revenue increased 36.3% y-o-y to S$265.6m, while NPI was up 37.7% y-o-y to S$244.2m.
• The strong set of results was mainly due to a full year’s contribution from SGP4, DC1 and the acquisition of Kelsterbach DC.
• Keppel DC REIT's portfolio occupancy remained healthy at 97.8% with a long WALE of 6.8 years. We understand that leases were renewed at negative to positive rental reversion in FY20. It has 7% of NLA up for renewal in 2021 and the REIT does not expect any non-renewals.
• We understand that demand for data centre in Singapore remains strong and management expects available supply to be tight towards year-end, which bodes well for rental rates.

Remaining AEIs on Track to Complete

• Keppel DC REIT has completed the fit out of a new data hall at Keppel DC Singapore 5 and handed to clients in Dec 2020 which pushed occupancy rate from 84.2% in Sep 2020 to 100%. The development of IC3 in Sydney is on track to complete by 1H2021. AEIs at DC 1 (fitting out shell & core for client expansion) and Dublin 2 (converting additional space into a data hall) are also on track to complete by 1Q2021 and 1H2021 respectively.
• We understand there are no new AEIs in the immediate term given the high occupancy.

Made Its First Acquisition Since COVID-19; See Strong Pipeline Ahead

• Keppel DC REIT made its first acquisition since the COVID-19 outbreak with the purchase of a data centre in Amsterdam for €30m (~S$48.1m) at a NPI yield of 5.1%. The acquisition will be funded with euro-denominated loans. The new data centre is on a double-net lease while the majority of the office spaces are leased to the data centre and IT services firms.
• After ironing out the difficulties of acquisitions due to COVID-19, Keppel DC REIT is seeing a smoother acquisition process now. We understand there is a strong pipeline of assets for acquisition and they are predominately fully-fitted and colocation assets with higher cap rates (5% to 7%) versus shell & core assets. The focus will still be acquiring from third parties given that the sponsor’s asset may only be ready by the end of the year.

Maintain HOLD

• We trim our Keppel DC REIT's FY21-22F DPU forecast by 0.5-0.8%. Accordingly our DDM-based target price of S$2.86 is reduced slightly as we model in its FY20 numbers. COVID-19 has fueled further demand for and underpinned the importance of data centres, but we believe this has been priced in.
• We have factored in S$300m acquisition in FY21. Upside/downside risks include higher/lower accretion from acquisitions.

Source: CGS-CIMB Research - 26 Jan 2021