SINGAPORE (April 5): OCBC is maintaining its “buy” on Keppel DC REIT with S$1.39 fair value given healthy valuations, a robust industry outlook and strong DPU growth profile in FY2017.

In a Monday report, lead analyst Andy Wong says the REIT is poised to benefit from the solid growth potential of the data centre industry, supported by booming data creation and outsourcing trends.

For Singapore only, which is one of Keppel DC REIT’s key markets, new demand CAGR is forecast to jump 12.0%.

This would be driven by firm support from the government, stable political climate and higher demand from hyperscale cloud players.

For the 10 cities which Keppel DC REIT has assets in, new demand is expected to exceed the incremental supply for six and eight of them in 2017 and 2018, respectively.

“Keppel DC REIT has four major leases which are expiring in FY2017, which we believe form the bulk of its 14.5% of lettable area due for renewal this year. From our understanding, management has secured agreements in principle to renew three of the four leases,” says Wong.

For the fourth lease, which is at its Basis Bay Data Centre in Malaysia, Wong expects the tenant to extend the lease.

Thereafter, there are minimal lease expiries in FY2018, FY2019 and FY2020.

“This makes Keppel DC REIT one of the most defensive REITs within the S-REITs space, with a portfolio WALE of 9.6 years, in our view,” says Wong.

“Based on our forecasts, Keppel DC REIT is offering distribution yields of 6.1% and 6.3% for FY2017F and FY2018F, which is attractive relative to its peers’ Bloomberg consensus average yield of 3.8% and 4.1%, respectively,” adds the analyst.

Units of Keppel DC REIT are trading at S$1.22. —

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