Brokers' Digest

DBS Group Research is raising its price target for Keppel DC REIT (KDC REIT) by 1.4% to $2.23, following a string of accretive acquisitions by the REIT. The new price target translates into a potential 13% upside for the stock.

After its recent acquisition of KDC SGP 4 and DC 1 in Singapore, KDC REIT is embarking on the acquisition of its second property in Germany, Kelsterbach DC.

While the latest acquisition will set KDC REIT back by some $125.3 million, DBS Group Research lead analyst Derek Tan opines that the REIT is in a comfortable position to take on the acquisition.

“Post-equity fundraising in mid-September, KDC REIT will capitalise on its low gearing to fully fund this acquisition by debt,” says Tan in a Dec 18 report. He adds that the acquisition is slated to have an initial yield of 6.5%.

DBS is maintaining its “buy” call on KDC REIT. The brokerage notes that KDC REIT has made three DPU-accretive acquisitions in as many months, which should have a positive impact on several of its financial metrics.

For a start, the acquisitions will see KDC REIT’s assets under management (AUMs) increase to $2.7 billion, while portfolio occupancy will inch up to 96%, from 94.5% previously. And although the REIT’s gearing is expected to reach 35% to 36% post-acquisitions, Tan notes that it still has debt headroom in excess of $400 million.

“Having already acquired close to $770 million of assets in recent months, KDC REIT will be looking forward to a record DPU in FY2020,” says Tan.

To be sure, the brokerage considers KDC REIT as one of the “strongest performers” among S-REITs, despite its relatively short trading history.

“While its share price has diverged from the broader market performance, this can be largely explained by its acquisition announcements, coupled with its exposure to a unique asset class — data centres — which we believe has a structural growth story,” says Tan. —