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Analysts: Buy Keppel DC REIT For 6% Dividends!
Aspire, Hot Picks | 24 July 2015
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By: Raymond Leung
Articles (142) Profile

Analysts' updates as at 23/07/2015

All eyes are on Keppel DC REIT (KDCREIT) after it announced a solid 2Q15 results, which beat its IPO forecast by two percent. Distribution Per Unit (DPU) for the quarter came in at $0.0162, bringing the 1H15 DPU to $0.0356. This brings the implied yield of KDCREIT close to six percent based on the price of $1.06.

Strong 1H15 Beats IPO Forecast

1H15 came in at $57.2 million which is 3.5 percent higher than the Initial Public Offering (IPO) forecast. However, property expense is higher by 8.1 percent at $9.1 million with property tax contributing mostly to the higher cost. The higher expense did not prevent KDCREIT to achieve a higher $31.4 million, beating forecast by 1.6 percent; same as its DPU.

Source: Dividend Yield, Keppel DC REIT

Strengthening Occupancy Profile

Source: Portfolio Occupancy, Keppel DC REIT

Occupancy for KDCREIT grew from the 93.5 percent during IPO (30 September 2014) to the current 94 percent. The Weighted Average Lease Expiry (WALE) by leased lettable area stands at 7.2 years. A healthy occupancy rate and strong commitments will ensure income stability to the counter.

Source: Leased Expiry Profile, Keppel DC REIT

Prudent Capital Management

Management of KDCREIT has taken steps to ensure their capitals are managed properly. Interest rates are 100 percent hedged for the next four to five years while foreign-sourced distributions are 100 percent hedged for the forecast of FY15 and FY16.

Source: Debt Currency Breakdown, Keppel DC REIT

The Acquisitions

Efficient capital management has enabled the counter to make the recent acquisition of IntelliCentre2 in Sydney. This property is expected to be yield accretive and push up KDCREIT’s DPU for 2H15.

The management is actively sourcing for quality properties to acquire from both its sponsor and third parties. With the efficient management of capital, the counter is likely to be able to make future acquisitions with the current debt ceiling.

Source: Debt Maturity Profile, Keppel DC REIT

Upside From Acquisition!

Analysts from Deutsche Bank Research are bullish towards KDCREIT with a “Buy” call and a target price of $1.15. Potential acquisitions for the REIT might bring upside towards the counter. In addition, the attractive six percent yield will be able to attract yield-driven investors and is “cheap” based on current valuations.

Trained in fund management, Raymond is familiar with shares and various investment vehicles.

Please click here for more information about this author.

Keppel DC REIT  2.010 +0.01 +0.50%   
Business: Invests in income-producing real estate assets which are used for data centre purposes.

Insight: Jul-19, 1H19, gross revenue rose 19.5% mainly cont... Read More

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